Buy, Sell or Hold Magellan? Take Time to Think It Over, Pros Say

Here’s today’s stock market quiz: The world’s largest mutual fund has just announced it is going to be off-limits to most new investors starting Sept. 30.

What do you do?

A) Buy into it, fast!

B) Get rid of it, now!

C) Relax.

The quiz is real for millions of people who either hold shares in the Fidelity Magellan Fund or would like to someday soon.

Fortunately for those with high blood pressure, the answer is C, analysts say.

The shuttering is not necessarily a reason for the 4.3 million Magellan investors to think about getting out. Fidelity says braking the $63-billion fund’s growth should make it easier to manage effectively.

“Magellan is an awfully big fund. It’s not what it was when Peter Lynch ran it,” said Eric Kobren, editor of Fidelity Insight in Wellesley, Mass.

When Lynch retired in 1990, Magellan was about a fifth its present size and had more room to maneuver in the market. Limiting the fund’s size may allow manager Robert Stansky to be more nimble.

At the same time, for those who might want to buy into Magellan because of its long-term reputation--perhaps hoping that history repeats--it’s worth noting that there are many more fund choices today that probably will perform as well or better in the years ahead.

There were fewer options when Lynch took over Magellan in 1977 and built its reputation by beating stock market averages consistently for 13 years.

If investors really believe that Magellan is a must-have, they can open an individual retirement account for as little as $500, or a regular account for a minimum of $2,500. Once in the fund, they can add to an account even after new investors are barred.

Employees of companies that offer Magellan as a retirement fund option can ignore the announcement. They can sign up for the fund after Sept. 30 even if they don’t currently own it.

Magellan’s performance year-to-date--up nearly 22%--is approximately the same as the average general U.S. stock fund, according to Lipper Analytical Services.

What does Magellan own these days? Fidelity’s August funds report says Magellan was 94% in stocks at June 30 and 6% in cash. The fund owned no bonds.

The top 10 stock holdings at June 30, in order: General Electric, Philip Morris, Citicorp, Merck, IBM, Home Depot, Oracle, Microsoft, CSX and BankAmerica.