Exclusive: Fidelity's Danoff looks beyond tech stocks as performance lags

Mon Apr 21, 2014 1:05pm EDT
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By Tim McLaughlin

BOSTON (Reuters) - 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 hard-hitting downturn.

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 FCNTX.O, has been holding, such as Workday Inc WDAY.O and Cornerstone OnDemand Inc (CSOD.O: Quote), 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 (XOM.N: Quote) 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.   Continued...

Fidelity Investments Contrafund manager Will Danoff (L) and Liberty Media CEO Greg Maffei (R) attend the second day of the Sun Valley Conference in Sun Valley, Idaho in this July 7, 2011, file photo. REUTERS/Anthony Bolante/Files