Another Whale: Is Fidelity Contrafund the next Magellan?

Posted by: Adrienne Carter on April 3, 2006

I always applaud a fund company when it makes the shareholder-friendly move to close a portfolio. So I have to give props to Fidelity for closing the doors of one of its most bloated funds, the $68 billion Fidelity Contrafund.

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Certainly, Contrafund and its manager Will Danoff have put up some stellar results in recent years. Huge bets on energy and savvy picks like Genentech and Marvell Technology made 2005 a banner year. It returned 16%, 10 percentage points more than other large-cap growth funds and 11 percentage points ahead of the S&P 500 index.

Chasing returns, shareholders (tsk! tsk!) poured into the fund in droves; Danoff’s two funds’ (he also runs Fidelity Advisor New Insights which also closed) have taken in over $12 billion in the past year.

Indeed, at $68 billion, Contrafund far outweighs Fidelity Magellan, the notoriously whale-like mutual fund that has struggled to even keep up with the index, much less beat it. So you have to wonder whether Fidelity should have shut out shareholders a long time ago. It already seems that Danoff is straying more and more from a multi-cap strategy to a large-cap centric one. At this size, Contrafund certainly doesn’t have much flexiblity.

So far this year, the fund is up 4.75%, beating the index by 1%. The question remains whether or not the fund can keep it up. Certainly Magellan’s fate doesn’t paint a rosy picture for Contrafund. Fidelity has surprised though, most notable Fidelity Low-Priced Stock. Manager Joel Tillinghast has managed to deftly manuever the small-cap arena with a whopping $38 billion. Here’s hoping Danoff can do the same.

Reader Comments

Phil

April 3, 2006 7:34 PM

It might be good that they're closing the fund, but it probably means that it's already bloated.

Also, comparing Contrafund to the S&P 500 is bad because 30% of it's holdings are international, 2 of the top 10 holdings are emerging markets, and a lot of the domestic holdings are small-cap and value. Check out my piece at The IRAte Investor for more. They're taking a lot more risk for a greater return, but they're comparing themselves to an asset class with much lower risk.

reginald d lee

May 1, 2006 3:58 AM


I would like to receive any info on the contra-

fund vis a vis will danoff.jim cramer has great

respect for this manager in his recent book
'REAL MONEY'.As a novice,Iwould like to know
if I could use his expertise

reginald d lee

bill

December 22, 2006 7:26 PM

What would account for the almost 8 1/2% drop today?

dave

December 28, 2006 10:06 AM

any answers for Bill 12/22 why did Contra draop $6 on the day of a $5 distribution

was this an apple issue a genetech issue what up

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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