| BOSTON, April 21
BOSTON, April 21 Will Danoff, who runs Fidelity
Investments' behemoth Contrafund, is frustrated by his lagging
performance this year and is pruning his exposure to cloud
software stocks that got clobbered recently in a swift and
Steering the mutual fund equivalent of a battleship, with
$109 billion in assets, Danoff has been one of the best stock
pickers over the past 20 years. And that is partly because of
his lopsided bets on so-called momentum stocks, particularly big
tech companies that don't need a lot of capital to fuel growth.
But that hasn't worked well in recent weeks, and while he
retains a technology bias he said he is also looking for
undervalued stocks outside of the sector.
"I'm not complacent," he said on Friday in an exclusive
telephone interview with Reuters. "I've had a tough first
quarter. I'm looking at each stock in my portfolio and asking,
'How good is this story.'"
As it turns out, the valuations of some of the cloud
software companies that Contrafund, has been holding,
such as Workday Inc and Cornerstone OnDemand Inc
, were too good to be true.
Workday has dropped 20 percent and Cornerstone has fallen
28 percent in a momentum stocks sell-off during the past month.
As a result, Contrafund is down 1.24 percent this year through
April 17, lagging the benchmark S&P 500 Index's positive advance
of 1.49 percent for the same period. Contrafund beat the index
by 1.76 percentage points last year.
But while some portfolio managers have run for cover and
have been buying the steady earnings of big oil companies like
Exxon Mobil Corp and utility stocks, Danoff says he's
not ready to play it safe.
"You can play that game, buy Hamburger Helper and buy more
integrated oil stocks. But I prefer to test my thesis," he said.
Danoff said he has trimmed some positions in the cloud
software sector, but not the leaders. He didn't provide any
details about what he has sold. But he was optimistic about
human resources software company Workday's growth trajectory and
said the company has a good management team.
Contrafund had an $8.8 billion position in Google Inc
and a $2.6 billion stake in Facebook Inc at the
end of February, according to the latest available fund
Danoff still gives both companies a vote of confidence.
He described Google's Internet search engine as a proxy for
"Do I want to underweight human curiosity? I don't think
so," Danoff said.
Meanwhile, he conceded that Facebook's February announcement
that it would spend $19 billion in stock and cash for WhatsApp,
a mobile texting company, raised doubts about Mark Zuckerberg,
Facebook's founder and chairman.
"Should I doubt a 29-year-old who's running a $150 billion
company?" Danoff said. "He saw an important asset and he sees
the future more clearly than I do. He thinks it (WhatsApp) is
worth it. Well, we will see."
Danoff says he expects to use the current earnings season as
one way to identify companies on a strong growth trajectory,
including those outside the tech and biotech sectors. He
declined to give any names.
He said he's asking Fidelity's army of 150 stock analysts if
there are any stocks that other investors have put in the trash
can that could be valuable.
PRUNING SOME STOCKS
He isn't used to running behind the pack.
"I'm a little frustrated with my performance," Danoff said.
Over the past 10 years, Danoff has outperformed 94 percent
of his peers in the large-cap growth fund category, according to
Morningstar Inc. His 9.85 percent average annual return over
that period easily beats the 7.42 percent average advance of the
S&P 500 Index.
Still, he has seen enough not to panic when there is a
sudden reversal in a sector.
The sell-off in the software as a service sector reminds
Danoff of how Home Depot Inc plunged in the late 1980s
when he was a retail stock analyst at Fidelity. Since then, Home
Depot's stock has risen to about $87 a share from about 60 cents
a share, on a split-adjusted basis.
"I don't want to get shaken out of a stock if I like the
long-term story," Danoff said. "There are big opportunities in
the next couple years. We don't want to batten down the hatches
and say we're closed for business. We're definitely open for
(Reporting By Tim McLaughlin; Editing by Richard Valdmanis and