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Fidelity Contrafund (FCNTX) is perhaps one of the best large-cap growth funds. The fund has achieved 7% annualized return in the past 10 years, beating S&P 500 total returns by a big margin (about 4.8% difference annually). The fund has been around since 1989. In the past 22 years, it had about a 13% annualized return, a stellar performance.

William Danoff has overseen the fund since 1990, one year after the fund was established, making him one of the best fund managers with more than 15 years' history. Danoff's investment style is contrarian growth-oriented. He is not afraid to hold a stock that has run up a lot. The following table shows the fund's valuation ratios:

AveragesFCNTXCategory Avg
Price/Earnings 17.85 16.99
Price/Book 2.86 2.95
Price/Sales 2.44 1.84
Price/Cashflow 10.76 9.47
Median Market Cap 33.47K 45.77K
3 Year Earnings Growth 19.43% 15.14%

From the above table, one can see that its stocks have higher earnings growth and slightly lower price/book ratio. On the other hand, it has higher average price/earnings and price/sales ratios. Danoff is definitely a fundamental momentum-driven investor. This can be seen by his fund's current top 10 holdings:

Top 10 Holdings
CompanySymbol% Assets
Apple Inc. AAPL 7.02
Google Inc. GOOG 4.79
Berkshire Hathaway BRK.A 3.25
Wells Fargo & Company Common St WFC 2.30
Walt Disney Company (The) Commo DIS 2.24
McDonald's Corporation Common S MCD 2.20
Coca-Cola Company (The) Common KO 2.10
Noble Energy Inc. Common Stock NBL 1.76
Gilead Sciences, Inc. GILD 1.67
Visa Inc. Visa Inc. V 1.67

We can see that the fund holds some of the hottest stocks like Apple and Google. Apple has about 7% of the total asset, which is siginifcant considering the fund's humongous $80 billion size (this is even more true since there are several classes of the fund and its popularity in retirement plans such as 401ks). Considering Apple's huge run up recently, one can see that Danoff is willing to hold a stock as long as he considers there is huge growth potential ahead. On the other hand, his 46% annual turnover rate is about half of the large-cap fund category's average (about 80%), indicating Danoff is willing to hold stocks even when they experience some short-term earnings difficulty.

At the moment, technology stocks are the largest sector holdings for the fund, making up about 33%. It is thus interesting to compare this fund's performance with diversified, all-risk-class-only ETF portfolios. The following shows the comparison between Contrafund and diversified dividend stock ETF portfolios. The strategic asset allocation portfolio consists of equal weights of U.S. stocks, international stocks, emerging market stocks and REITs ETFs (i.e. 25% each) and rebalanced monthly.

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR5Yr Sharpe
FCNTX 18% 95% 1% 1% 5% 17%
Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 20% 141% 6% 16% 7% 21%
Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 14% 87% 15% 81% 17% 80%

[Click to enlarge]

For performance of more than five years, please refer here.

Though the Contrafund lost to both the ETF portfolios, one can still expect that if the economy turns out to be good in the future, the fund's stock performance should have high potential to grow. For investors who are willing to venture into stock picking, the Contrafund's top holdings can be a good starting point. However, we would advocate this should be only for a portion of your equity holdings in a portfolio.

Source: 10 Solid Growth Stocks From Fidelity Contrafund