Jun. 13--Reacting to both poor results and bad publicity, investors in Fidelity's Magellan fund withdrew more than $1 billion in May, according to an industry report released yesterday.
While Fidelity as a whole took in more than $2 billion in new equity money during May, the firm is losing ground to the competition, said David O'Leary of Alpha Equity Research, a Portsmouth firm that monitors Fidelity.
"They are losing market share because their performance is lagging," said O'Leary. "I'm sure that concerns management a lot."
Fidelity would not comment on specific funds, but noted that its equity fund sales this year are running ahead of last year's pace.
With $55 billion in assets, Magellan is far and away the nation's biggest and best-known mutual fund. But, thanks to a large -- and so far unsuccessful -- bet on the bond market, Magellan's performance has been subpar this year. As of this week, Magellan was up about 2.7 percent for the year, compared to a gain of 8.6 percent for the Standard & Poor's 500.
On May 23, Magellan's manager, Jeffrey Vinik, announced his resignation, saying he planned to start his own fund. He was immediately replaced by Robert Stansky.
In fact, most of the money that left Magellan moved into better-performing Fidelity funds, say those who follow Fidelity.
In general, May was an excellent month for mutual funds. The Investment Company Institute yesterday said investors poured an estimated $22.5 billion into stock mutual funds, down slightly from April's $26.3 billion but very much in keeping with this year's record-setting pace. Through the first four months of 1996, equity fund sales were running at triple the pace of 1995.
The poor bond performance and low returns on certificates of deposit have apparently convinced investors that the stock market is the place to be, say industry sources.
The bond numbers explain many of Magellan's problems. According to Fidelity's monthly Mutual Fund Guide, Vinik maintained the fund's large position in bonds -- 19.2 percent of the fund -- through April.
O'Leary estimates that Fidelity captured roughly 10 to 12 percent of all new money flowing into equity funds in May, well below the 20 percent share the company was gathering a year ago.
"I think this is a temporary thing that will work itself out," said Jack Bowers, editor of Fidelity Monitor, a newsletter.
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