Fidelity Contrafund’s New Focus Brings Challenges

Fidelity Contrafund’s FCNTX strong leadership keeps its massive asset base afloat.

The strategy has excelled over the full scope of Will Danoff’s tenure at the helm, which began in 1990. Since then through January 2023, the 12.8% annualized return of its no-load share class far outpaced its S&P 500 prospectus benchmark (a gauge of the broad U.S. market) and Russell 1000 Growth Index (the large-growth Morningstar Category’s benchmark), both of which gained 10.4%.

Danoff has long pursued competitively advantaged companies with durable multiyear earnings growth prospects and modest economic sensitivity, a cohort that until 2021 tended to outperform by wide margins and provided a stylistic tailwind for most of the past decade.

But in 2022, the portfolio’s focus on these traits softened. The fortunes of the fund’s top stocks helped reshape its overall stylistic profile as growth stocks plunged and inflation and interest rates climbed. Meta Platforms META, the fund’s largest holding at 10% of assets at the start of the year, saw its growth slow and margins narrow. Meanwhile, a rally across the insurance industry helped lift multidecade holding Berkshire Hathaway BRK.A, from which few expect fast growth, to become the fund’s biggest stock. Danoff pared back the fund’s allocation to software—a longtime favorite of his and a plentiful source of competitive advantages, according to Morningstar’s equity research team—and amassed a stake in the energy sector. The fund drifted toward the blend column of the Morningstar Style Box from growth, where it had spent the past 20 years.

Danoff’s pivot in 2022 probably helped the fund salvage some losses that year as technology and consumer stocks were ravaged and energy stocks soared. (Before then, the fund’s exposure to energy was often negligible.) But it also risks underperforming its large-growth peers when that style swings back into favor, as it did in January 2023. Given the fund’s tough-to-steer asset base of over $180 billion across accounts, Danoff lacks the flexibility of his peers to rapidly return to his historically preferred fare, should he want to.