Fidelity Contrafund (MUTF:FCNTX) is trouncing the S&P 500 in 2015, and the fund’s out-performance looks to continue for the foreseeable future.
As I pointed out in a story on Contrafund late last year, the combination of a seasoned manager and the timing of the mid- to late-phase portion of the business cycle makes for a ripe environment for funds like FCNTX.
When the market is heading into transitional periods, as it appears to be doing now, actively managed funds headed by experienced stock pickers often prove to be an advantage.
Will Danoff has been at the helm of Contrafund for over 24 years, which means he’s seen just about every market condition imaginable. Danoff’s tenure marks half of Contrafund’s history, which dates back to 1967. It also doesn’t hurt that Fidelity’s analyst team is known as one of the best in the mutual fund industry.
The long-term track record for FCNTX is among the best in the mutual fund industry. The lifetime return since inception for Fidelity Contrafund is an incredible 12.5%. Under Danoff’s tenure, the 15-year annualized return of 8% crushes the S&P 500’s 4.9%, and FCNTX beats 99% of large-growth stock funds. The 10-year return ranks ahead of 87% of category peers.
As for the business cycle advantage, growth stocks tend to outperform the major market indices in the latter phases, and FCNTX is about as “growth” as a growth fund can get. Although the portfolio holds value-leaning financial stocks, such as top holdings Berkshire Hathaway Inc. (NYSE:BRK.A) and Wells Fargo & Co (NYSE:WFC), the vast majority of holdings are large-cap growth stocks, such as Apple Inc. (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB), Biogen Inc (NASDAQ:BIIB) and Google Inc (NASDAQ:GOOG).
Contrafund is Big but Gets the Job Done
One potential drawback for Contrafund is its size. With $110 billion in assets, Danoff may have at least a slight disadvantage to funds with fewer assets under management. Most of the biggest mutual funds with active management end up looking more like an index fund but losing to the index fund when expenses are factored in.
Looking at recent performance, FCNTX is ahead of the average large growth fund with a year-to-date gain of 6.4%, which also crushes that of the S&P 500, which is sitting on a 4% gain in 2015.
With that said, the one-year performance rank in the 49th percentile puts Contrafund just barely ahead of the category average but comfortably ahead of the S&P 500.
Although past performance is no guarantee of future results, my educated guess is that Contrafund’s size may slow it down, but the leadership of Danoff still makes FCNTX a fund that can pull off the job an investor should expect of an active fund manager — to beat the major stock market indices at least a majority of the time.
How to Play FCNTX and Who Should Invest In It
While the short-term potential for Contrafund is good, FCNTX also makes for an outstanding core holding in a long-term investor’s portfolio. Fidelity Contrafund can complement satellite holdings, which might include an international stock fund, a small-cap stock fund, a bond fund and perhaps a few sector funds.
In application of a core-and-satellite portfolio, the core holding typically represents the largest percentage, which might be anywhere between 30% and 50%, depending upon the investor’s needs, time horizon and risk tolerance.
The fund typically holds nearly 100% stocks, most of which are large-growth, which means Contrafund is not generally suitable for investors with short-term (less than three-year) time horizons.
The expense ratio for Contrafund is low at 0.64%, which is $64 per $10,000 invested. The minimum initial investment is $2,500.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. However he holds FCNTX in some client accounts. His No. 1 holding is his privately held investment advisory firm. Under no circumstances does this information represent a recommendation to buy or sell securities.
