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Fidelity Contrafund Contrarian? Au Contraire


BOSTON ( TheStreet) -- The Fidelity Contrafund (FCNTX) is loaded with some of the most widely held stocks, including an outsized bet on technology darling Apple (AAPL), which may mean the mutual fund's risk-taking, "contrarian" days are over.

Contrafund is the single-largest shareholder of Apple at 1.7% of the device maker's outstanding shares. It's a $5.4 billion stake that makes up 6.8% of the mutual fund.

Fidelity Contrafund manager Will Danoff

The fund has squeezed Apple, the maker of iPads and iPhones, for all its worth, as its stock has been a double-digit contributor to its returns for at least the past five years, due to Apple's average annual return of 41% for the period.

And its joy ride is not over yet, as Apple's shares hit an all-time peak of $400 July 26 and is now trading at $385.65, a gain of 22% this year, which puts it on pace to maintain its five-year average annual return.

Other top-five holdings of Contrafund, which are likely to be found among the most popular picks of large mutual funds, are: search-engine company Google (GOOG), at 4% of the fund, valued at $3.2 billion; Warren Buffett's Berkshire Hathaway (BRK/A), 3% of the fund, valued at $2.4 billion; the fast-food chain McDonald's (MCD), at 2.5% of the fund, valued at $2 billion; and beverage maker Coca-Cola (KO), at 2.2% of the fund, valued at $1.7 billion.

Morningstar analyst Christopher Davis said in a June 10 research note that because of the fund's huge asset base, longtime manager Will Danoff has shifted the fund's focus from mid-cap and small-caps stocks to a "growth-at-a-reasonable-price philosophy," which means "the fund is now dominated by larger fare."

Indeed, eight of its top 25 holdings are also in the top 25 of the S&P 500 Index and there's a lot of overlap further down the roster as well.

But any potential criticism of Danoff from wandering from Contrafund's agenda, which according to Fidelity's definition is "investing in securities of companies whose value (Fidelity) believes is not fully recognized by the public," is mitigated by his track record.

Danoff took over the then-$300 million Contrafund in 1990, and through his stock-picking acumen has built it to a $78 billion fund as of June 30, with a mind-boggling 494-stock portfolio.

The steady returns are what have lured investors, and this year is no exception as inflows through June 30 were about $3.5 billion.

Contrafund is down 3% over the past three months, but up 3% this year through Aug. 3 on a cumulative total-return basis, versus the 6.6% decline of the S&P 500 over the past three months and a 1.3% gain this year.

More telling of its success, Contrafund has a 10-year average annual return of 7% versus the S&P's 2.3%, a performance that puts it in the top 1% of all funds in the large growth fund category.

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