What Makes Fidelity Contrafund Different

The following is our latest Fund Analyst Report for Fidelity Contrafund FCNT. Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

Fidelity Contrafund maintains its Morningstar Analyst Rating of Silver. Led by manager Will Danoff since 1990, the $105 billion fund has long been one of the industry's biggest by assets. The challenges its size presents, plus fees that aren't as low as might be expected given its economies of scale, keep it from achieving a higher rating. However, the fund remains an attractive offering thanks to Danoff's experience and consistent execution through the years.

Danoff looks for companies poised to grow their earnings, preferring solid business franchises with capable management teams. As may be expected from a growth fund, technology is the bulk of assets (recently 30%) and includes big bets on

Top positions in the portfolio have largely remained intact for several years--turnover is moderate because of the fund's size--and include some financials names that aren't commonplace in other large-growth Morningstar Category funds. The fund has had a longtime bet on

Danoff has Fidelity's large global analyst team at his disposal, which helps him keep tabs on the sprawling portfolio of 300-plus names and feeds him ideas that can help distinguish the fund from its benchmark. The fund owns some privately held companies, notably Uber and Pinterest. These remain a small portion of the fund's overall assets, but investing in them early could prove beneficial down the line if they have successful IPOs. Plus, they're another way the fund differentiates itself from popular passive funds.

Process Pillar:

Positive | Katie Rushkewicz Reichart, CFA 07/14/2016

Will Danoff follows a typical growth strategy, looking for firms with improving earnings, but his execution sets the fund apart. He weaves together his own analytical insights, gleaned from nearly 30 years at Fidelity, with research from 135 global analysts. As the biggest owner of many stocks, Danoff has unparalleled access to company management, helping him understand a business' growth drivers. Capacity has long been a risk, given that Danoff manages more than $100 billion across accounts. (In 2013, Fidelity named John Roth as comanager at Danoff's other charge,

Danoff has made tweaks to the process through the years to accommodate its growing size, including trading less often, owning fewer mid- and small-cap names, and maintaining a portfolio of 270-500 stocks. (The name count has trended downward recently as Danoff has focused on his best ideas.) These moves haven't affected long-term performance, which remains strong. The fund has been closed in the past but is currently open and has experienced outflows in recent years.

Danoff's consistent execution through the years earns the fund a Positive Process rating.

Despite the fund's large asset base and portfolio of hundreds of names, it has avoided looking too marketlike. The fund has held as much as 20% in non-U.S. equities in the past, though its 8% non-U.S. stake as of May was on the low end of its normal range during the past decade.

While the fund's size limits Danoff's ability to take meaningful positions throughout the portfolio, he doesn't shy away from making big bets where he can. Alphabet and Berkshire Hathaway are long-standing bets in the portfolio, each at more than 4% of assets as of May. Facebook is a top-five position based on Danoff's belief that it is a great franchise with excellent management. Technology remains the biggest sector weighting, at 30% of assets, and is a sector where the fund has done well in the long term. He's closely watching valuations at Amazon.com and management's execution at Alphabet but is comfortable with big positions in both companies.

The fund's 15% financials stake is above the large-growth norm (though similar to its S&P 500 prospectus benchmark) and includes top picks, such as longtime holding Wells Fargo WFC. However, Danoff has trimmed the banks as interest rates haven't risen as expected. The fund has stakes in some private technology companies, including Uber, Pinterest, and Airbnb, though these are a small percentage of overall assets.

Performance Pillar: Positive | Katie Rushkewicz Reichart, CFA 07/14/2016 This fund has been a top large-growth offering under Will Danoff, who has managed it since September 1990. During his tenure through June 2016, the fund has gained 12.7% annualized to the S&P 500's 9.9%, the Russell 1000 Growth Index's 9.3%, and the category's 8.6%. Danoff's record is all the more impressive considering the huge sum of money he oversees, totaling more than $100 billion. Undoubtedly, this fund is less flexible than the $6 billion Fidelity Series Opportunistic Insights used exclusively in Fidelity's target-date series, which he's led to even better results since its late-2012 inception.

This fund isn't too volatile for a growth fund. Danoff, who has run money long enough to witness a few major market blowups, has outperformed large-growth peers and the Russell 1000 Growth Index in down markets during his tenure, including in both bear markets of the 2000s. The fund's Morningstar Risk score, which penalizes downside deviations in returns, is low. Danoff prefers proven growers showing tangible signs of improving earnings to more-speculative fare, which means the fund can lag in certain market environments, such as 2009's rally. It's lagged its benchmark during the past year through June, dragged down by consumer and financials picks, including

People Pillar: Positive | Katie Rushkewicz Reichart, CFA 07/14/2016 Will Danoff has run this fund since September 1990. On his watch, Contrafund has been one of the top-performing large-growth funds, even as it has grown in size. While Danoff's years of experience and stock-picking abilities have given the fund an edge and support its Positive People rating, he also relies on Fidelity's global analyst staff of 135. The analysts' input is essential, as it would be difficult to effectively oversee a portfolio of 300-500 stocks himself. The analysts have incentives to relay their best ideas to him, as he commands more than $100 billion in assets across all his charges. But Danoff is actively involved in stock-specific research and carries around a thick notebook listing the tickers of companies he's met with.

Given Danoff's heavy asset load, capacity has been a long-standing concern. Fidelity has taken small steps to address that, naming John Roth as Danoff's comanager at the $25 billion Fidelity Advisor New Insights in September 2013. That won't take too much off Danoff's plate, as he recently started running Fidelity Series Opportunistic Insights ($6 billion in assets as of June), which is used exclusively in the target-date series. Roth may be viewed as the heir apparent here, given he was handpicked by Danoff, but the latter has announced no intention of retiring soon. Danoff invests more than $1 million in both this fund and Fidelity Advisor New Insights.

Parent Pillar: Positive | Katie Rushkewicz Reichart, CFA 10/14/2015 Industry giant Fidelity is well resourced and remains an industry leader in technology, trading, and its brokerage platform. Its fixed-income division has been stable and features funds with strong long-term risk-adjusted records. The sprawling equity lineup hasn't always been as consistent beyond some of its most well-known managers. But the equity division has shown signs of stabilizing since the 2007-09 financial crisis. Performance and manager tenure have improved, and Fidelity has handled manager changes more carefully. The equity analyst team is now more experienced overall, and there's evidence that the build-out of the international-equity team has borne fruit. The effort to carve out value and equity-income teams should serve investors well.

Even so, the huge fund lineup leaves room for some mediocre funds. The firm also has much to prove with its revamped target-date funds, which have lost market share to competitors following weak performance and have since undergone management changes and process tweaks.

Still, Fidelity is headed in the right direction. The funds’ boards and managers have made consistent performance and manager ownership a priority. The lineup remains reasonably priced. Improvements on the equity side are encouraging, and its fixed-income funds remain among the industry's best. Fidelity earns a Positive Parent rating.

Price Pillar: Positive | Katie Rushkewicz Reichart, CFA 07/14/2016 This fund has a performance fee, so its expense ratio can change based on how its three-year returns look relative to the S&P 500. (For every percentage point of out- or underperformance, the expense ratio is adjusted by 0.02%, up to a maximum of 0.20%.) The performance-based fee is in the interest of investors, who don't have to pay as much when the fund is underperforming. The fund's Price Pillar rating is determined without considering the performance adjustment. The no-load and K shares are priced below average relative to similarly sold peers, so the fund receives a Positive Price rating. Expenses have ranged from 0.64% to 1.01% during the past decade; the latter is hard to justify given the fund's huge asset base. Currently the no-load shares cost 0.70%.