This Fidelity fund’s top five sectors are: Information Technology, 29.0% of assets; Consumer Discretionary, 19.9%; Financials, 16.2%; Health Care, 16.0%; and Industrials, 6.4%.
Fidelity Contrafund (FCNTX)
from The Moneyletter
Not many mutual fund managers celebrate their 25th anniversary of managing the same fund. But last month, Will Danoff of Fidelity did just that, marking 25 years of heading Fidelity Contrafund (FCNTX). Contrafund is the second largest actively managed equity fund, behind American Funds’ Growth Fund of America with more than $103 billion in assets.
When Fidelity Contrafund opened in 1967, it invested in true contrarian mode: buying unloved stocks. As the years passed and the fund grew, that strategy mellowed with age. Yet, the fund still aims to buy stocks where prospects are not accurately reflected in their prices.
To Danoff’s credit, during his tenure he steered the fund to outshine the S&P 500 and Morningstar’s large growth category. For the trailing 15 years through October 2, Contrafund was in the top 1% of its category. More recently, a 6.4% return for the year ending October 2 outpaces nearly two-thirds of the category, while its trailing three- and five-year returns best roughly 60% of its peers. Since 2004, it has fallen below the 50th percentile only twice: in the market recovery year of 2009 and again last year.
One key to the fund’s results has been its ability to outperform in down markets, including both bear markets of the 2000s. In statistics compiled by Money, Contrafund lost 15% in the 2000-2002 bear market, compared to 30% for the average large growth fund. From 2007 to 2009, the fund dropped 37% vs. 41% for its peer group. Conversely, it can lag in certain rally environments (such as 2009, noted above).
The fund’s stated strategy is to seek “companies we believe are poised for sustained, above-average earnings growth that is not accurately reflected in the stock’s current valuation. In particular, we emphasize companies with ‘best of breed’ qualities, including those with a strong competitive position, high returns on capital, solid free cash flow generation, and management teams that are stewards of shareholder capital.”
The fund is certainly well diversified, but will deviate from the average on sector weightings. Compared to its category, the fund is most overweight in financial services, and underweight in energy and industrials. Danoff recently noted pressure on the energy sector due to the decline in the price of oil, but added, “industry dynamics have improved somewhat, and we will closely monitor developments here, looking for potential bargains if we think the uptrend will continue.”
Danoff has had a good record of investing early in firms with a promising earnings path. He was an early shareholder in Facebook, for example, and has invested in a number of private companies, including Uber, Pinterest, and Airbnb.
Technology has historically been an area of strength for the fund. Danoff notes, “Contrafund has emphasized ‘franchise’ companies—Google, Facebook, Apple, and Amazon.com, all of which make products or provide services that consumers all over the world love and use regularly.” He added that he expects these firms to grow earnings faster than the average company, and for these reasons, they are among the largest holdings in the fund.
Meanwhile, a more confident consumer has bolstered favorably positioned consumer discretionary firms, including top holdings Starbucks and Disney.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, October 2015