MAGELLAN'S NEW DIRECTION

By John Greenwald

Jeffrey Vinik, manager of the $56 billion Fidelity Magellan Fund, the world's largest and most closely watched mutual fund, "beat the pants off the managers of other large funds," in the words of one analyst. Yet few people were surprised last week when Vinik simply beat it, abruptly resigning from FMR Corp., Fidelity's owner. His replacement is Robert Stansky, until now a low-profile manager of Fidelity's Growth Company Fund.

While Vinik, 37, and the company denied that he was pushed--and he most likely wasn't--the aggressive manager had made the classic mistake of zigging when he should have zagged. Last year he dumped stocks and bought bonds even as the stock market routinely hit new highs. Although Vinik's record of a 17.2% average return over nearly four years bested most of his competition, Magellan's 4.3 million shareholders fidgeted as the fund returned just 2.4% on an annualized basis in the first four months of 1996, while the Standard & Poor's index of 500 stocks, the gauge by which mutual-fund managers are measured, returned 6.9%. Worse, at the end of April the tepid showing had caused Magellan's average growth over three years to trail that of the S&P 500 for the first time in Vinik's tenure. "If you lag behind the index over three years, you can expect to be out of there soon," says Jack Bowers, who edits the Fidelity Monitor, a newsletter that tracks Fidelity.

In fact, Vinik had become a lightning rod for the public's perception of problems at Fidelity, a $442 billion cash machine based in Boston, whose 238 mutual funds command a leading 13% share of the U.S. fund industry. Late last year Vinik drew the attention of the Securities and Exchange Commission for publicly touting computer maker Micron Technology while Magellan quietly unloaded its Micron shares. This year Fidelity shuffled no fewer than 26 fund managers in March to perk up the funds' performance.

Vinik, who plans to start his own investment company called Vinik Asset Management, told TIME that he decided to leave "in the past couple of weeks," after lengthy talks with his wife. "It was a family decision," he explains. Up until now, he says, his extended and successful stay at Fidelity had allowed him to spend "good quality time" with his three children. He claims to look back with satisfaction, having met a personal-performance goal by consistently topping the S&P 500 index. "With 20/20 hindsight," he concedes, "I wish I hadn't bought bonds when I did." Sounds just like the rest of us amateurs.

The grueling job now passes to Stansky, 40, a highly regarded Fidelity veteran who has headed the $17 billion Growth Company Fund since 1987 and achieved healthy returns of 16.1% a year, including an 8.8% increase in the first four months of 1996. The two managers are a study in contrasting philosophies. Whereas Vinik made sweeping bets on entire sectors of the economy, like technology, Stansky methodically studies individual companies and favors blue-chip stocks over the small- and medium-size companies that Vinik preferred, in the manner of his mentor Peter Lynch. "Stansky will be a good fit," says Don Phillips, president of Morningstar, which tracks mutual funds. "What was always a little difficult for Vinik was that he was trying to run Magellan as if it were a smaller, more flexible fund." Stansky's approach promises less volatility in the performance of the fund. That's not a bad idea, since Magellan is fighting to stay high on the list of pension managers. The fund gets 90% of its new money from 401(k) plans.

Some experts say Magellan may have grown too large and unwieldy for anyone to run effectively these days. Others point to its high profile. "The problem with Magellan is that it's too famous, and the scrutiny you're under is almost unbearable," says Phillips. "Your every move is second-guessed."

--Reported by Sam Allis/Boston and Jane Van Tassel/New York

With reporting by SAM ALLIS/BOSTON AND JANE VAN TASSEL/NEW YORK