Mutual chief quits top US fund

Jeffrey Vinik, the once-untouchable but recently beleaguered manager of America's largest and best-known mutual fund, the Magellan Fund, astonished Wall Street yesterday by resigning and unveiling plans to set up his own investment firm.

His announcement put a chill on the bond market, with 30-year Treasury Bonds dropping 9/32 of a point in early trading. The Dow Jones Industrial Average also slipped back on the news, interrupting a run of record-setting gains.

Mr Vinik, 37, took the helm at Fidelity's $56bn Magellan Fund in July 1992 and quickly established himself as a virtual guru of the markets, whose investment choices were widely mimicked. Recently, however, he has drawn criticism as his fund has seriously underperformed the competition.

Reports last winter that he has been the target of two separate investigations by the Securities and Exchange Commission also attracted unwanted publicity for Fidelity. The Boston-based company denied that Mr Vinik had been forced out, however.

Mr Vinik is widely regarded to have stumbled badly late last year by betting heavily on bonds, which have subsequently fared relatively poorly. Bonds account for about $10bn of Magellan's holdings, analysts said yesterday. So far this year, the fund has gained only 4.7 per cent, well below nearly all the market indexes which have produced double-digit returns.

Yesterday's market nervousness reflected concern that Robert Stansky, who was named to replace Mr Vinik, would move swiftly to change tack away from bonds. "The fear is that the next manager may not be so loyal to the fixed income markets," commented Matthew Greenwald of Oppenheimer Capital.

Mr Vinik's regulatory headaches began with reports last year that he was being probed for upbeat remarks he made about Micron Technologies in a media interview at a time when Magellan was in the midst of selling Micron. More recently there have been unconfirmed reports that he and other senior Fidelity managers may have been "front-running", namely buying shares on their personal accounts in firms that were about to attract Fidelity investments. Mr Vinik has denied all the allegations.

But in spite of these well-publicised difficulties, his announcement caught most on Wall Street off guard. "It was entirely his decision," a Fidelity spokesman said of his departure. "There was no pressure from the company to resign".