* Danoff: "Wound is still open" after poor run in December
* Looking to buy in out-of-favor sectors
* Hopes to run Contrafund another 20 years
* "Strong earnings growth often comes at a price"
By Ross Kerber
BOSTON, Jan 6 His track record gives him
grounds to gloat, but star fund manager William Danoff of
Fidelity Investments instead offers only a few modest lessons
from 20 years of running the massive Contrafund. (FCNTX.O)
With about $72 billion in assets, Contrafund is the largest
actively managed stock fund under a single manager and
Fidelity's largest aside from money market vehicles.
In a rare interview at his offices in downtown Boston this
week, Danoff, 50, outlined the nuts and bolts of his approach
to investing, saying he prefers to buy companies when their
sectors are out of favor with other investors.
Danoff also said he has been willing to pay up for quality
companies -- those likely to increase market share and earnings
even if their stock seems expensive.
"Other people can buy a weaker company really cheap," he
said. "I want companies that are generating strong earnings
growth, and strong earnings growth often comes at a price."
Graphic on how Contrafund stacks up:
FUND VIEW-Fidelity's Danoff counts on tech spending
Danoff brushed off the praise others have heaped on his
performance, crediting Fidelity's expansive team of analysts,
and emphasizing some difficult runs he has had.
In December 2010, for example, Contrafund beat just 7
percent of peers at a time when markets were generally ending
the year with a surge.
"That wound is still open," Danoff said of December's
Others would call it a mere paper cut. Contrafund, which
Danoff has managed since 1990, has done better than 98 percent
of peers over 10 years and beaten 84 percent of peers over five
years, according to data from Morningstar Inc.
BEATING RIVALS EVEN IN AN OFF YEAR
2010 was an off year by Danoff's standards -- Contrafund
beat only 65 percent of peers in returning 16.93 percent, 1.4
percentage points above the average for large-cap growth funds.
And that followed 2009, when 76 percent of peers did better.
Nonetheless, Danoff's investor base, many of whom count on
the Contrafund to build wealth for their retirement or for
their children's college educations, stayed loyal at a time
when equity funds have been out of favor.
Contrafund had a net inflow of $768.7 million in cash from
new investors in the 21-month period ended Sept. 30, 2010, when
it was reopened to new investors for the first time since 2006,
according to data from the Lipper unit of Thomson Reuters.
The temporary closure was meant to give Danoff a respite
from having to find new places to invest the torrent of cash
his strong performance was attracting. Withdrawals by retirees
prompted the reopening.
Morningstar fund analyst Christopher Davis said Danoff
stands out for posting good results through both bull and bear
markets. "It may not be that Danoff knows more than everyone
else, but he pieces together information far better than most
managers," Davis said.
Retired Fidelity executive Steve Jonas, who supervised
Danoff from 2005 to 2007, made a similar point: that Danoff has
an eye on others even when he is making his own bets.
"The really good investors think differently than the
crowd. Will takes everybody else's thinking into account. He's
not a forced contrarian," Jonas said.
Jonas joked about Danoff's laid-back persona and embrace of
the "business casual" dress code. "He has a tie on if he has
to," Jonas said. Among Danoff's hobbies are swimming, playing
tennis and baking with his family.
Danoff's current reading is "The Warmth of Other Suns,"
Isabel Wilkerson's nonfiction account of the migration of
African-American families to Northern U.S. cities in the last
He is also reading "Better," by surgeon, MacArthur Fellow
and Harvard professor Atul Gawande, about how doctors -- and by
extension other professionals -- can improve their performance
amid the constraints of organizations.
Danoff grew up in Stamford, Connecticut, where his mother
was a school teacher and his father a pediatrician. He
graduated from Harvard and later the University of
Pennsylvania's Wharton business school, and joined Fidelity in
1986 as a securities analyst.
After stints at one of Fidelity's smaller retail funds and
as portfolio assistant for the Magellan fund, Danoff took over
Contrafund in 1990, when its assets were about $300 million.
Danoff said that small base gave him time to hone his craft
before the fund's enormous size became a challenge. "I've grown
up here," he said, adding, "It's harder for a fund manager to
be parachuted in to a bigger fund."
Though Danoff did not say so, the line could sum up the
story of Harry Lange who since 2005 has posted a middling
record running Magellan -- once Fidelity's flagship fund, but
now an also-ran with about $22 billion in assets.
EXECS BEAT A PATH TO DANOFF'S DOOR
Danoff said he would be happy to run Contrafund another 20
years rather strike out on his own like his predecessor on
Contrafund, Jeffrey Vinik, who now runs his own
money-management firm and last year bought the Tampa Bay
Lightning National Hockey League team.
One reason is that with some $1.5 trillion in assets under
management -- a figure roughly the size of Canada's gross
domestic product -- Fidelity attracts a daily stream of top
executives of major companies eager to make their case to
Danoff and other fund managers.
That gives him a unique perspective across many industries,
Danoff said, and makes it easier to compare companies against
each other. "I'm trying to see just a little bit further around
the corner than the rest of the world," he said.
Ironically, the meetings with industry titans help Danoff
keep it real. Visiting CEOs often mention that their mothers
own Contrafund, or that it is among their company's 401(k) plan
offerings. What does he tell them? "I'm working as hard as I
can," Danoff said.
Contrafund's sheer size -- it was the ninth-largest of all
equity mutual funds as of Nov. 30, according to Lipper -- gives
Danoff plenty of sway over the companies in which he invests,
of which Apple and Google are currently the largest.
But Danoff says he is no activist. "My desire is to invest
with great managers and let them run the business," he said.
Contrafund's mandate also gives Danoff wide power to decide
what stocks to buy and sell. The fund's name suggests a
contrarian streak, which Danoff said could be a misnomer and
prompted internal discussions about a new label.
But nothing doing. "The powers that be, well above my pay
grade, have decided never to change the name," he said.
(Reporting by Ross Kerber; editing by Ros Krasny and Matthew