What Is a Contrafund?

Contrafund is one of the star mutual funds in the Boston-based Fidelity Investment's family of funds. The fund’s strategy is to invest in stocks the manager deems underpriced with promising growth potential. Buying common stocks “on sale” has allowed Contrafund investors to beat the S&P 500 over the past one-, three-, five- and 10-year periods, and the fund has topped 95 percent of mutual funds with the same objective.

Contrafund started in 1967 and grew to a half-trillion dollars under the management of William Danoff, who has guided the fund since 1990. Thanks to the huge influx of new monies, the fund closed to new investors in 2006. Fidelity reopened Contrafund in 2009, partially because of the large drop in stock prices during the 2008 recession.

Danoff seeks fast-growing, cash-rich companies that carry little debt. The fund’s top 10 holdings reflect the largest companies in the United States, including such well-known brands as Google, Coca-Cola, Apple, McDonald’s and Proctor & Gamble. Contrafund is not confined to investing in only large company stocks, though. Almost 20 percent of its holdings are small-cap and mid-cap stocks.

Contrafund does not limit its purchases to United States common stock. The fund holds 20 percent of its portfolio in foreign stocks from Canada, the United Kingdom, China and Switzerland. This type of global diversification gives the fund flexibility to seek higher returns.

While a mutual fund’s performance is no guarantee of future profits, Danoff has shown the ability to grow investors' money in a prudent manner. In the short-term, his strategy is to continue investing in larger companies with growth potential. Because of concerns about U.S. debt, his future plans for Contrafund are to purchase growth companies with an eye toward foreign, emerging markets.

The minimum investment required to invest in Contrafund is $2,500 (see Resources). There is no minimum amount for future contributions. The fund charges investors an annual management fee of .95 percent. Morningstar, a firm that rates mutual fund companies, gives Contrafund its highest overall rating of five stars.