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QUARTERLY INVESTMENT OUTLOOK AND FUND REVIEW

Biggest of Big Ahead of S&P Index

October 09, 2000|JOSH FRIEDMAN | TIMES STAFF WRITER

The nation's two biggest mutual funds, the $111-billion Vanguard 500 Index and the $104-billion Fidelity Magellan, were nearly flat for the third quarter, perhaps boring their many investors but otherwise leaving them unscathed.

Magellan eased 0.6% and Vanguard 500 dipped 0.9% as both large-cap funds, which are among the most popular choices in 401(k) retirement plans, held up slightly better than the benchmark Standard & Poor's 500, which fell 1% on a total-return basis.

(Even though Vanguard 500 is supposed to track the S&P, it can perform slightly better at times.)

Magellan manager Bob Stansky, who took over the fund in June 1996, beat the S&P 500 in 1998, 1999 and so far this year. The fund's returns of 33.6% in 1998 and 24% last year won't make anybody forget about the Peter Lynch days, but Stansky still earns his peers' respect for piloting such a giant ship.

Among other common 401(k) offerings (see chart at upper right), value-oriented stock funds such as Vanguard Windsor II, Fidelity Equity-Income II and Putnam Fund for Growth & Income did well as the market continued turning toward lower-risk stocks and away from pricier growth stocks.

Windsor II benefited from its sector bets, with energy holdings such as Schlumberger and Phillips Petroleum, and financial holdings such as Citigroup and Bank of America, helping to lift it to a 10.6% return in the third quarter. It's up 9.8% for the year.

Big "hybrid" funds such as Income Fund of America, Vanguard Wellington and Dodge & Cox Balanced--which invest in bonds as well as stocks--fared well as market bond yields fell in the quarter, boosting older bonds' value. The funds are designed to be a safer harbor in times of market turmoil, and they've met the test this year.

In the large-growth arena, the flagship Janus fund, which slumped 6.7% in the second quarter, performed better in the third, eking out a gain of 0.7%.

Pimco Total Return, a popular bond-fund choice, had a solid quarter, gaining 2.9%. The fund was up 7.1% in the first nine months--beating the average stock fund.

The quarter's losers? International stock funds such as Fidelity Overseas, T. Rowe Price International and Scudder International, as Asian markets plunged and the weak euro clipped European stock returns. All three funds ended the period with double-digit losses year-to-date.

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