For Fidelity Contrafund (FCNTX), 2015 could be the best year in nearly a decade. In an environment where large-cap growth stocks often lead and in a transitional period where seasoned stock pickers like manager Will Danoff are managing the portfolio, Contrafund may be ripe for the picking.
Here’s how and why this outstanding large-cap growth fund could be a market leader in the coming year:
Starting with the macro-economic outlook, the U.S. economy is exhibiting classic signs of exiting the mid-phase of the business cycle and entering the late-cycle phase, which is when interest rates begin to rise and economic growth is still relatively strong but begins to level off.
This mid-to-late phase of the business cycle is an ideal environment for growth stocks, which is why Fidelity Contrafund stands to benefit. Adding to the attraction for the fund’s prospects in 2015 is that the investor herd tends to favor large-cap stocks over smaller capitalization stocks. Also, the U.S. economy is among the strongest in the world.
Fidelity Contrafund’s Portfolio, Performance and Profile
The FCNTX portfolio was recently more than 90% large-cap stocks, with the vast majority United States equities.
Top sectors for the fund are strong late-cycle sectors like technology, financial services and consumer cyclicals. Respective top holdings include Google Inc (GOOG), Berkshire Hathaway Inc (BRK.A), and Walt Disney Co (DIS).
Looking back eight years to 2007, when the economy was in the previous cycle’s late phase, the average large growth stock fund had a 13.4% return while the S&P 500 gained 5.5%.
How did Fidelity Contrafund perform? It put in a sizzling 19.8% return for 2007. Amazingly, FCNTX had a 2008 return of -37.2%, when the average large growth fund returned -40.7%.
Although past performance is no guarantee of future results, the history shows how well-managed growth stock funds can perform in the right environment.
Speaking of management and history, Will Danoff has run Fidelity Contrafund for more than 24 years and he’s put in an outstanding track record. Danoff is experienced and has been through many market cycles, coming out ahead in the long run. It also doesn’t hurt that Fidelity’s analyst team is known in the mutual fund industry as one of the best.
Danoff’s tenure marks half of Contrafund’s history, which dates back to 1967. The lifetime return since inception for the fund is an incredible 12.6% and Danoff’s 10-year annualized return of beats 93% of large growth category peers in one of the toughest decades in history.
One possible drag on performance is Contrafund’s size. With more than $100 billion in assets under management, Danoff has an enormous ship to navigate but the fund’s girth only appears to slow the fund in short periods, such as less than one year, while the long-term periods remain solid.
Helping Fidelity Contrafund’s performance is the low expense ratio of just 0.66%, which is just $66 out of $10,000 invested.
You can buy shares of FCNTX with an initial minimum purchase of $2,500.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
