|Vanguard Index Trust 500 Portfolio||$104.8 Billion|
|Fidelity Magellan||$104.6 Billion|
Unofficially, the Vanguard Fund outgrew Magellan for the first time on April 4, 2000. See
The Vanguard Group
Index Trust 500 Portfolio Profile
|Quote and Graph||Snapshot||Profile|
|Fidelity Magellan Profile||Quote and Graph||Snapshot||Profile|
|Total Return (%)
as of 3/31/2000
|1st Qtr.||1 Year||3 YRS||5 YRS||10 YRS|
|Vanguard Index Trust 500 Portfolio||2.24||17.91||27.37||26.69||18.71|
Vanguard 500 Is Set to Pass Magellan as Biggest Fund ($$) from the Wall Street Journal (1/12/2000)
Just when it seemed like the index fund was about to get into strinking distance, Magellan has gone on a hot streak. Manager Bob Stansky had a terrific fourth quarter beating the S&P by more than five percent in 1998 - the first time in five years Magellan has beaten the benchmark. It still looks like it's only a matter of time before the index fund outgrows Magellan, but Fidelity won't give up the title without a fight.
According to The Wall Street Journal (10/1/98), investors pulled some $11 billion out of stock funds in August of 1998. The last time the fund industry had outflows was in September of 1990. Among the few stock funds to have inflows were the index funds of The Vanguard Group, which during August attracted slightly more than $1 billion of new money.
The historic 1998 baseball regular season has come to an end, but the battle for the top spot in the mutual fund world is just starting to heat up. The Vanguard S&P 500 fund's Magic Number has shrunk rapidly in the last few months. When Investor Home introduced the Magic Number a little over a year ago, Magellan had a more than $16 billion size advantage. Since then, the Vanguard fund has trimmed $10 billion off that lead and it now appears highly probable that John Bogle's prediction (that the S&P 500 fund will be the largest mutual fund in the world by the end of the century) will turn out to be prophetic.
To mark the event, Index Funds Online is holding a Triumph of Indexing Contest. The site is inviting guests to project when the Vanguard fund will bypass Magellan, with the best predictors winning free books.
According to the 2/23/97 issue of InvestmentNews, Magellan and several other major Fidelity funds have resumed suffering net outflows since the start of the year. Magellan had net outflows of $2.9 billion last year prior to closing the fund. After the announcement, the fund took in $382 million through the end of the year, but this year (through February 12) Magellan has had projected outflows of more than $500 million.
At the end of 1994 the Vanguard S&P 500 fund had total assets of under $10 billion. Over the following three years the fund had a total return of 125% and has multiplied in assets by five times to just under $50 billion. Magellan, once one of the nation's top performing funds, just finished its fourth consecutive year of underperformance versus the S&P 500. According to Alpha Equity Research (Source: WSJ 1/8/98) the net new investment for Magellan in 1997 was $-3.81 billion.
According to Bloomberg News, Jeffrey Vinik's Vinik Asset Management posted 93.8% returns after fees for the first eleven months out of the gate. Vinik previously managed Magellan.
Magellan officially closed to new investors on September 30 and initial estimates place inflows for the month of September in the $100 million area. Magellan was successful in beating the S&P 500 in the third quarter. The performance combined with the fund closing will likely help to limit both inflows and outflows which appears to be Fidelity's primary intent in closing the fund.
On August 27th, Fidelity announced that Magellan would be closed to new investors as of September 30, 1997. Existing shareholders and people whose 401(k) and other retirement plans offer Magellan will still be able to purchase the fund. The announcement appears to be at least partially a publicity play given the timing of the announcement. Magellan's performance has improved relative to the S&P 500 in the last few months and the fund is experiencing net inflows for the first time in 17 months (investors had withdrawn $11 billion from the fund since April 1996). The short term impact might be increased inflows from investors that want to have the option of buying more of the fund in the future, however its possible that in the long run it will keep the fund from growing larger. Given the fact that the fund already has over 4 million shareholders and the vast majority of incoming money originates from retirement plans, it may have little impact.
Many commentators see the move as an admission that the size of Magellan is hampering returns and thus hurting existing shareholders. If Magellan is able to improve its performance as a result of reducing inflows, it could be a very profitable decision for Fidelity because Magellan's management fee rises substantially if the fund outperforms the S&P 500. Some experts see the move as an attempt to switch the spotlight away from Magellan and onto Fidelity's attempt to build a financial "supermarket" competing against Charles Schwab and others.
Preliminary reports on money flows into equity funds during the month of August indicate significantly reduced interest from investors. Equity funds may have taken in as little as $9 billion as opposed to $26 billion in July. Stock fund inflows at Fidelity appear to have declined from $2 billion in July to $1 billion in August but Vanguard appears to have fared much better comparatively, taking in $2.2 billion down from $3 billion for the same time period.
Last update 5/31/2000. Copyright © 2000 Investor Home. All rights reserved. Disclaimer