Which Fidelity Fund Is Better: Contrafund or New Millennium?

Two years ago, we pulled Fidelity Contrafund (symbol FCNTX) from the Kiplinger 25 and replaced it with Fidelity New Millennium (FMILX). We had no qualms about Contra’s performance or the estimable Will Danoff, the fund’s manager since 1990. Our concern was with its immense asset base, $114 billion at the time. We worried that Danoff would have trouble steering the battleship through increasingly turbulent markets. New Millennium, by contrast, had $3 billion in assets, about the same as it does today.

Fidelity New Millennium Hits a Rough Patch

The switch hasn’t paid dividends…yet. Over the past two years through February 29, New Millennium lost a cumulative 8.4%; Contra gained 4.6%, and Standard & Poor’s 500-stock index returned 7.2%.

New Millennium’s problem? Actually, there were three: too many energy stocks, too many small- and midsize-company stocks, and, in 2015 in particular, not enough FANGs—the acronym for Facebook, Amazon.com, Netflix and Google, now called Alphabet. These four high-tech behemoths led the market last year.

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Though Danoff and New Millennium’s manager, John Roth, both focus on growing companies, Roth has more of a value tilt: He’ll consider cheap stocks that are out of favor or economically sensitive companies that are rebounding. So Roth started to boost his energy holdings after the sector began to tumble, along with oil prices, in mid 2014. At last report, the fund had 14% of its assets in energy stocks, about twice the weight in the S&P 500. Although the energy sector seemed to turn the corner in mid January, whether the turnaround will lead to a meaningful improvement in New Millennium’s near-term results remains to be seen.

Investors’ infatuation with large-company stocks also hurt the fund. Roth is free to invest in companies of any size—and he does. Some 40% of New Millennium’s assets sit in small-cap and mid-cap stocks. That has been a drag on the fund’s performance because, on the whole, the smaller the company, the worse the stock performance over the past two years.

Roth’s long-term record is solid. Since he became manager in July 2006, New Millennium has returned 7.0% annualized, edging the S&P 500 by an average of 0.4 percentage point per year. Morningstar analyst Katie Rushkewicz Reichart says that investors shouldn’t count out New Millennium, despite the recent “rough patch.” Roth’s experience, plus the likelihood that the market will eventually turn against the higher fliers (if it hasn’t already) and turn toward the unloved, should eventually benefit New Millennium’s shareholders.

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Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.