Fund Watch
Two Fidelity Funds Reopen
Contrafund and Low-Priced Stock have great long-term records, but they haven't held up well in this bear market.
By Andrew Tanzer, Senior Associate Editor, Kiplinger's Personal Finance
December 16, 2008
After being closed to new investors for years, two of Fidelity's most distinguished funds, Will Danoff's Contrafund and Joel Tillinghast's Low-Priced Stock, have reopened. Walter Donovan, president of Fidelity's equity division, says: "Will and Joel are huge culture carriers for the group in the spirit of Peter Lynch," the star manager of Fidelity's Magellan fund during the 1980s. Should you consider investing in Contra or Low-Priced?
Their long-term records are certainly outstanding. Since Danoff took the reigns at Contra (symbol FCNTX) in September 1990, the fund has returned an annualized 12% through November 30, an average of four percentage points better than both Standard & Poor's 500-stock index and a basket of large-company growth funds.
Low-Priced Stock (FLPSX) returned 13% a year from December 1989 through November 30 under Tillinghast. That was a fat five points per year better than both the Russell 2000 index of small companies and Morningstar's midsize-company benchmark.
But neither fund has distinguished itself in today's unforgiving bear market. Each has shed 40% of its value this year through December 12.
Danoff studies big-picture themes, interrogates company managements and devours research emanating from Fidelity's army of analysts. "Danoff is a contrarian investor who's made a career of thinking against the grain," says Jim Lowell, editor of Fidelity Investor newsletter.
Danoff invests in growth companies at reasonable prices. Studying his latest holdings suggests that he's avoiding financials and positioning the fund quite defensively -- a nod to the ugly economy. Berkshire Hathaway, a classic value stock, has replaced Google as the fund's largest holding. And durable, consumer-oriented blue chips, such as Procter & Gamble, Johnson & Johnson, Coca-Cola and McDonald's, are large holdings. Danoff typically invests in more than 300 stocks in Contra, Fidelity's largest fund, but his top ten account for a quarter of its assets, which now total $45 billion.
Tillinghast is much more of a company-details guy, with an astounding, encyclopedic knowledge of the 800 companies typically stuffed in his idiosyncratic portfolio. "Of all the Fidelity managers I've ever talked to, he stands out as the brainiac of the bunch," says Lowell, a long-time Fidelity watcher.
Low-Priced sounds like a bit of a gimmick-the fund invests only in stocks selling for less than $35 a share -- but you can't argue with Tillinghast's long-term results. The portfolio is an eclectic mix -- Bed Bath & Beyond, UnitedHealth Group and Petrobras were the three largest positions at last report, and foreign stocks accounted for 28% of the fund's assets, which total some $17 billion. Says Jack Bowers, editor of Fidelity Monitor newsletter: "Tillinghast likes to really understand the business models of the companies he invests in and is obsessed with how the companies make money."
Whether you should consider investing in these funds depends largely on whether you feel like sinking more savings into stocks. Contrafund, with an annual expense ratio of 0.89%, stands an excellent chance of besting the S&P 500 index over the long haul. Low-Priced (expense ratio: 0.98%), which invests in value-oriented small and midsize companies, complements Contrafund nicely.
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