BOSTON (Reuters) – Fidelity Investments’ Will Danoff again is managing over $100 billion in assets by himself, raising concerns among investors that the manager of the Contrafund – a staple in millions of U.S. retirement accounts – may struggle to maintain his stellar performance record.
Running big sums of money alone has tripped up plenty of portfolio managers. Solo managers torpedoed by burnout, asset bloat and poor performance include some of Danoff’s Fidelity colleagues like Bob Stansky and Harry Lange and fallen stars elsewhere like Legg Mason’s (LM.N) Bill Miller.
The key question investors are asking is whether the strategies that led to Danoff’s impressive success over the past 22 years will continue to serve him as the fund grows ever larger. Contrafund has beaten 97 percent of similar funds over the past decade, according to Morningstar, and doubled the return of the Standard & Poor’s 500.
“I always worry about the size of the fund, as investors did with Magellan (FMAGX.O) for many years and how we do now with the Pimco Total Return,” said Dave Caruso, founding chairman and managing director of Coastal Capital Group LLC in Danvers, Massachusetts.
Still, Danoff remains one of the firm’s top picks among managers who invest in large companies, Caruso said. Danoff can draw on Fidelity’s vast research and trading heft to aid his investing, Caruso noted. “What it comes down to is that I still trust his judgment,” Caruso said.
Danoff has deftly piloted the fund through both of the past decade’s bear markets. He invested heavily in Apple (AAPL.O) well before most investors recognized the once-beleaguered computer maker was on the way up. Fast-growing restaurant chain Chipotle Mexican Grill(CMG.N) was another early find. And, in recent years, he avoided some financial sector dead spots like Bank of America Corp (BAC.N).
A big fund with a solo manager is a red flag for Lawrence Glazer, managing partner at Boston investment adviser Mayflower Advisors LLC. Danoff currently oversees $84 billion in assets at the Contrafund (FCNTX.O) and another $19.8 billion at the Fidelity Advisor New Insights Fund (FNIAX.O), sometimes called “Son of Contrafund.”
But Glazer, too, is sticking with Danoff for some clients accounts. “He has proven his ability to manage a very large sum of money,” Glazer said.
NO DOWNSIZING
Glazer said he appreciated that Danoff spreads his bets across hundreds of stocks. “We look at the risk in the holdings as much as the total assets,” Glazer said. “If he begins to take big concentrated bets to put the money to work and outperform, I will get concerned.”
Last time Danoff’s workload crossed the $100 billion threshold, Fidelity gave one of Danoff’s three funds to another team to reduce his responsibilities. And Contrafund was closed to new investors for more than four years from April 2006 through September 2010.
But Fidelity said there are no plans to downsize Danoff’s current duties. That may because in an industry that preaches diversification, Danoff’s role at Fidelity is anything but.
Over the past three years, the two funds managed by the 51-year-old Danoff generated $1.6 billion in management fees for Fidelity, U.S. regulatory filings show. He managed about one out every seven dollars in Fidelity’s equity division, which had $635 billion in stock mutual fund assets at the end of 2011.
“Fidelity has a lot riding on that fund as it has become a staple of 401(k) plans,” said Mayflower’s Glazer.
Danoff is Fidelity’s star manager, but a quiet, unassuming one. On a recent evening, there was Danoff leaving his office in downtown Boston walking to nearby South Station to catch a commuter train. Wearing a beige trench coat, he was carrying three bags, including one bulging with papers.
He’s a work horse who sets the tone for other portfolio managers at the Boston-based mutual fund giant, said Brian Hogan, president of Fidelity’s equity group.
“I talk to Will virtually every day,” Hogan said. “He leads by example. He’s totally engaged. He’s at the 125 percent level.”
Caruso, who has met Danoff, said he reminds him of “a really smart college professor who seems a little disheveled, but has an amazing recall for the events and company histories that he has followed for many years.”
ASSET CHALLENGE
Morningstar’s director of mutual fund research, Russel Kinnel, said Danoff is managing twice as much money as the second largest solo stock fund manager, Steven Wymer, who runs the $44 billion Fidelity Growth Company Fund (FDGRX.O).
Kinnel came up with a list of 10 managers who managed the most money by themselves a decade ago.
“Six of the funds … have gone on a forced diet as they are smaller today than they were 10 years ago even though the stock market has gained an annualized 4.5 percent over that time,” Kinnel said in a recent research note.
At the top of the list is Magellan, whose assets have declined by about $56 billion over the past 10 years.
Boston hedge fund manager John DeTore, Danoff’s next door neighbor in the suburbs, marvels at his friend’s capacity to do deep research on companies, a skill that fell out of favor after the peak of the credit crisis forced firms to cut analysts.
“We need more Will Danoffs,” DeTore said.
(Reporting by Tim McLaughlin; Additional reporting by Svea Herbst; Editing by Aaron Pressman and Tim Dobbyn)
