Fidelity Contrafund: An Exemplary Record

10/28/2015 9:00 am EST

Focus: FUNDS

Not many mutual fund managers celebrate their 25th anniversary of managing the same fund, observes Cynthia Andrade, contributing editor to Walter Frank's MoneyLetter.

But last month, Will Danoff did just that, marking 25 years of heading Fidelity Contrafund (FCNTX).

Contrafund is the second largest actively managed equity fund; it has more than $103 billion in assets. When it 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 (SPX) and Moringstar's large growth category. For the trailing 15 years, 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.

Of course, the fund has not been above average in all years. But 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 exemplary long-term record has been its ability to outperform in down markets, including both bear markets of the 2000s.

Over the years, Danoff has had to fine-tune his investment process to accommodate growing assets. The fund owns fewer small- and mid-cap names than in prior years and portfolio turnover has slowed.

Also, the number of stocks in the portfolio has trended down. Danoff is focusing on his best ideas. Compared to its category, the fund is most overweight in financial services and underweight in energy and industrials.

Danoff has a good record of investing early in firms with a promising earnings path. He was an early shareholder of Facebook (FB) 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 has emphasized franchise companies such as Google (GOOG), Apple (AAPL), and Amazon (AMZN).

Meanwhile, a more confident consumer has bolstered favorably-positioned consumer discretionary firms, including top holdings Starbucks (SBUX) and Disney (DIS).

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