Stansky leaves lagging Magellan

Robert Stansky is stepping down after a decade of running Fidelity Investments' flagship Magellan fund, a period in which it rocketed to nearly $110 billion in assets and then plummeted to become a symbol of the mutual fund giant's mediocre performance.

''I would like a break," Stansky said in a conference call with reporters yesterday.

In the almost 10 years Stansky has run Magellan, the fund has trailed the benchmark Standard & Poor's index by 1.2 percent a year. An investor who put $10,000 into Magellan at the beginning of Stansky's tenure would have had $18,713 as of Friday, according to data from Morningstar Inc.; if that same investor had put $10,000 into an S&P index fund, it would have grown to $20,758.

Stansky, 49, said he had been thinking of leaving long before new executives were put in charge of Fidelity's money-management arm in May with a mandate to improve performance.

''A lot of things line up where it's a good time" now, he said. ''If I were going to be forced out, I assume it would have been a while ago," when he went through a several-year period of badly trailing his benchmark.

Fidelity, which has been losing market share amid a period of lackluster performance by its large-company domestic equity funds, also disclosed another major manager departure: Steve Kaye, 46, who headed the $31 billion Growth & Income fund, is stepping down, after posting a strong long-term record but faltering in the last several years.

''Wow, a lot of shake-ups going on," snapped Robert O. Smith, whose Exton, Pa., firm Comprehensive Financial Advisers, provides financial planning.

Smith and others said the turnover at these two important funds shows that Fidelity is in the throes of a major overhaul of its hallmark mutual-fund operation.

Abigail P. Johnson, the daughter of Fidelity chairman Edward C. Johnson III and his presumed successor, was moved out of the top job at the money-management arm in May and put in charge of the company's fast-growing services business. Her replacement, Stephen P. Jonas, is spending $100 million over the next year to improve Fidelity's stock-picking abilities.

Stansky's departure ''signals to me Fidelity is taking the issue of performance seriously, as a business liability and as a business opportunity," said veteran Fidelity-watcher James Lowell. Fidelity, he added, had been ''lackadaisical and it has hurt them in terms" of sales and market share.

Just last week Fidelity disclosed that through the first nine months of 2005, investors had withdrawn a net $1.1 billion from its equity-based mutual funds.

Stansky's underperformance on Magellan has been costly for Fidelity; the fund pulled in $89 million less in fees in the fiscal year that ended March 31 than it otherwise would have, due to a fee-adjustment clause that penalizes the firm for underperformance.

Although no longer Fidelity's largest fund, Magellan still has $52.5 billion in assets and 4.4 million shareholders. Its first manager was chairman Johnson; former manager Peter Lynch became a star in the 13 years he ran it, returning an average of more than 29 percent a year.

Fidelity named Harry W. Lange, 53, who has run the $7 billion Capital Appreciation for as long as Stansky ran Magellan, to succeed Stansky. Lange's much smaller fund has achieved much better results: During his tenure, Capital Appreciation posted 9.7 percent average annual total return, compared to 8.4 percent for the S&P 500.

Lange is known for making big bets on certain sectors, particular technology, and he is more fond of small and mid-cap-size companies than his predecessor.

''I've always had a very flexible investment style," Lange said in yesterday's call. He plans to be ''aggressive," and said he sees ''a lot of great opportunities in small-caps."

While he expressed some frustration at Magellan's performance, Stansky continued to lay blame at the stock market's ongoing lack of interest in the kind of large-cap growth stocks that he favored.

''I feel I gave it my best shot," Stansky said. ''The market didn't turn as fast as I thought in large-cap stocks. I feel fine about it."

One measure of the difference between the two: At Capital Appreciation, Lange had 30 percent of the fund's holdings in mid- and small-cap companies; Stansky had under 4 percent, according to research by financial planner Robert O. Smith. But despite Lange's track record, Smith said it will be a challenge for the new manager to find enough small and mid-cap companies to make a difference in Magellan's performance.

''It will be interesting to see how well he can maneuver a fund seven times the size of his old one into small- and mid-caps," Smith said. ''But that's what he's going to have to do" to significantly outperform rivals.

In a statement yesterday, Kaye said he was ''ready for something new" after a dozen years of running Growth & Income. His successor is Timothy M. Cohen, who in three years of running Fidelity's Export and Multinational fund beat 91 percent of his peers.

Kaye will continue managing institutional portfolios, while evaluating other opportunities at Fidelity.

Stansky said he would take some down time to consider his next move. ''Don't be surprised to hear I'm somewhere wandering in Fidelity, taking up a new challenge," Stansky said.

Andrew Caffrey can be reached at caffrey@globe.com.