Fidelity Magellan Fund, 1995

Abstract

This case reviews the financial performance of the Fidelity Magellan Fund up to mid-1995. In essence, the Magellan Fund has managed to "beat the market" over time under three different fund managers despite its enormous size ($51 billion at the date of the case). The tasks for the student are to assess the adequacy of this performance, evaluate its likely sources, and opine on its sustainability. The case affords the opportunity to consider the appropriateness of various possible benchmarks in a risk-return framework and to assess the reasonableness of the efficient-markets hypothesis. The case can be used in an introductory finance course to present general information about equity markets and the behavior of large, sophisticated money managers.

Excerpt

UVA-F-1126

Version 1.7

THE FIDELITY MAGELLAN FUND, 1995

1988: The only thing that sets him apart is this: for 10 years now, he has been the best mutual fund manager alive…. “Around Fidelity,” says one former marketing aide, “Peter Lynch is God.”

1991: Morris Smith does things his way at Fidelity Magellan—but he gets the same old stellar results.

1993: If young Jeff Vinik keeps up his torrid performance as manager of Fidelity's Magellan Fund, his shareholders might soon forget that there ever was a Peter Lynch… Vinik is now the hero.

. . .

Keywords: market efficiency, portfolio return, investment risk analysis securities security