How One $108 Billion Man Has Beaten the Market

How One $108 Billion Man Has Beaten the Market

Will Danoff manages Fidelity Investments’ $108 billion Contrafund, the largest actively managed stock or bond mutual fund run by just one person. The way he sees it, even in the age of index funds, humans have fundamental investing advantages than machines simply can’t replace.

Track Record
Since taking over the fund on September 17, 1990, Mr. Danoff has guided Contrafund to an average annual return of 12.7%, according to Morningstar. That rate has outperformed the S&P 500 index by 2.9% per year. $10,000 invested into Contrafund back then would give you $231,207 at the end of last month. That same 10,000 invested into the S&P 500 would only have grown to $118,184.

More recently, though, Contrafund has struggled. Over the past five years, it has been outperformed by the market by about half a percentage point on average, although in 2005 the fund outperformed by over 5 points.

As central bankers have reduced interest rates to extraordinarily low levels over the last five or six years, active managers have had difficulty beating the index, Mr. Danoff says. He is confident that experienced active managers will make up plenty of ground when the pendulum swings back.

Secret Sauce
So how has Mr. Danoff found success when other big company fund managers haven’t? For the past quarter-century, he has met with executives from lots and lots of companies – about 35,000 he guesses. He keeps hand-written notes from all of those meetings, looking for opportunities by turning over as many stones as possible.

He met with roughly 100 companies in September alone, gleaning information from shrewd executives that will help him make the best possible long-term investments for his shareholders. Insights about a company’s suppliers, competitors, customers, and technology help him create a holistic view of its trajectory.

Being able to admit mistakes and learn from them is another key to success in this industry, Mr. Danoff believes. Being at a big firm also helps, giving him valuable access to top executives.

He describes choosing to invest in one company based on ideas he gets from another as a ‘bank shot,’ like a basketball bouncing off the backboard and through the hoop. His ability to look beyond the numbers and see many different types of bank shots, he says, is a skill that cannot be replicated by a spreadsheet.

Is outperforming tougher now than ever before due to persistent comparisons to index funds? The environment is more competitive, he admits. His fund needs to beat the S&P or risk replacement, be he has faith in his ability as an active manager.

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