The Fidelity Contrafund (FCNTX) is the largest actively managed mutual fund in the world, with more than $134 billion in assets under management (AUM) as of Oct.19, 2018. It is among the most widely held funds by 401(k) plans and other retirement plans. Contrafund is managed by Fidelity Investments, the second-largest mutual fund company in the world with more than $2.6 trillion AUM as of July 31, 2018. In the 1980s, Fidelity was catapulted into the top tier of investment management funds when legendary stock picker Peter Lynch drove the Magellan Fund to huge success. In the 1990s and beyond, it was William Danoff’s turn to carry the torch as the fund manager for the Fidelity Contrafund.
When it was first launched in 1967, the fund was named Contrafund for its original investment objective, which was to take a contrarian view by investing in out-of-favor stocks or sectors. Since Danoff began managing the fund, its objective has changed to simply achieving capital appreciation by picking good growth stocks. Because of the fund’s enormous size, it tends to focus on U.S. large-cap stocks with market values greater than $10 billion. The fund managers use bottom-up fundamental analysis to find companies they believe are poised for sustained, above-average earnings growth not reflected in the stock’s price.
William Danoff joined Fidelity in 1986 as a securities analyst and portfolio manager. He took over management of the Contrafund in 1990 when it was considered a contrarian fund. He gradually changed the fund’s mission into investing in fair or undervalued, well-managed, “best-of-breed” companies with good prospects for earnings growth. In the last 25 years, his stock-picking prowess has attracted more than $100 billion in assets, making the Contrafund one of the most successful growth funds of all time. Danoff graduated from Harvard University in 1982 and went on to earn a master of arts degree and an MBA from the University of Pennsylvania.
The fund invests primarily in large-cap U.S. stocks, but it has a small number of foreign securities. The fund favors the technology sector with a 36.64% allocation as of Aug. 31, 2018, followed by financial services stocks at 22.66% and consumer cyclical at 16.50%. Its top five holdings account for 25.46% of the portfolio and include Amazon.com (NASDAQ: AMZN), Facebook, Inc. (NASDAQ: FB), Berkshire Hathaway, Inc. (NYSE: BRK.A, BRK-B), Microsoft Corporation (NASDAQ: MSFT) and Alphabet, Inc. (NASDAQ: GOOGL).
The Contrafund is considered an outstanding core holding for long-term, growth-oriented investment portfolios. A core holding such as the Contrafund should have a 30 to 50% allocation, depending on an investor’s time horizon and risk profile. For a more diversified stock portfolio, the Contrafund should be complemented by an international stock fund due to its low foreign holdings. As of Aug. 31, 2018, Morningstar ranks the Contrafund as low risk in its fund category, which is large growth. It requires a minimum investment of $2,500. There are no front-end loads or sales charges. The expense ratio is 0.74%, which Morningstar considers below average for the fund category.