Mutual Funds & Personal Finance
 

Danoff's Focus At Fidelity Has Paid Off BY KEN HOOVER INVESTOR'S BUSINESS DAILY Posted 1/3/2006

Will Danoff has amassed an impressive record as manager of Fidelity Contrafund, one of the nation's largest funds with $58.5 billion in assets.

He's been able to beat the market most years since taking the helm of the Boston-based fund in September 1990.

For 2005 the fund was up 16.2% vs. 6.4% for its large-cap growth peers tracked by Morningstar and 4.7% for the S&P 500. The three-year average annual return was 19.61% vs. 13.9% for its peers and 14.33% for the S&P 500. The five-year average was 6.21% against -3.37% for peers and 0.52% for the S&P.

The 10-year record is the most impressive because it's exceedingly hard to beat the market for the long haul, through bull and bear, bubble and bust. The 10-year average was 12.01% vs. 9.06% for the S&P 500.

Morningstar puts Contrafund in the large-cap growth category. But Danoff is willing to go anywhere to find good stocks, large- or mid-cap, growth or value. But with the size of the fund, it's hard to take a significant position in smaller names.

Danoff also runs Fidelity Advisor New Insights Fund. The $3.8 billion fund has performed even better since its launch in July 2003. One possible reason: with fewer assets it can be more nimble and has been able to buy more small-cap stocks.

Small caps have been leading the market the past few years, although there's some hint larger names are taking the lead.

Contrafund holds 518 names. But Danoff isn't afraid to concentrate on his best prospects. The top 10 holdings make up 19.4% of the fund.

The average Earnings Per Share of his holdings is 73, which reveals a tendency to lean toward growth. And even though Contra can invest in any segment of the market, its top holdings and largest new buys in its latest reporting period bristled with top-flight growth stocks.

Take Google, (GOOG) which is near the top of the IBD 100. The stock has an Earnings Per Share Rating of 99 and a Relative Strength Rating of 98.

Google has been one of the market's most dynamic leaders since going public in August 2004. It's up more than 400% from its offering price of 85 and has built three bases as it raced to new highs on earnings that easily exceeded even the most optimistic forecasts.

Danoff has been building his position in Google for at least a year, more than tripling the shares he holds even as the stock price has increased. With so much buying power, Contra helped exert a lot of upward pressure on Google.

Danoff also has among his top holdings Yahoo, (YHOO) the planet's most visited Web site and another IBD 100 name with an IBD Composite Rating of 99. He increased his Yahoo stake by about a fourth over the past four quarters, again even as the stock has climbed to new highs.

A third name on the IBD 100 that has been among Danoff's top holdings is Genentech. (DNA) The South San Francisco-based biotech firm has reported earnings increases of 50% or more the past five quarters. Analysts expect a 62% rise in Q1 '06.

The fund's top new buy for the latest reporting period was Gilead Sciences, (GILD) an IBD 100 member with a Composite Rating of 97. The Foster City, Calif., company specializes in developing drugs that treat life-threatening diseases.

The fund's mandate is broad enough that it can invest in foreign stocks, which amounted to 21% of assets as of Sept. 30. Its foreign holdings mainly were in Canada, Bermuda, the U.K. and Switzerland.

At Fidelity, Danoff has the advantage of a huge staff of analysts to feed him ideas and warn him when the party for one of his holdings might be ending.

In 2002, he told IBD he quizzes up to five CEOs a day and tries to pick up something new in every conversation. He also sizes up the CEO.

"When I talk to any CEO, he or she should have a detailed understanding of his business. A motivated CEO will have thought through certain trends and have some sense of urgency," he said.

Relative to the S&P 500, Contra was overweight in energy and industrial materials. That helped the fund's performance since they were two of the few sectors with significant gains in early 2005 when the market was essentially flat.