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April 03, 2006
Another Whale: Is Fidelity Contrafund the next Magellan?
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.
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.
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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.
Posted by: Phil at April 3, 2006 07:34 PM
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
Posted by: reginald d lee at May 1, 2006 03:58 AM
What would account for the almost 8 1/2% drop today?
Posted by: bill at December 22, 2006 07:26 PM
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
Posted by: dave at December 28, 2006 10:06 AM