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 At a time when investors have been shifting tens of billions of
dollars from active management to passively-managed funds, Danoff is
one of the few mutual fund managers whose quarterly disclosures can
move market prices. His Contrafund, with $106.3 billion in assets
under management, is a mainstay of retirement savings plans
nationwide.
Yet some financial advisors and fund analysts say they are concerned
that Fidelity has yet to name a co-manager for Contrafund, setting
up the risk that investors will flee and remaining shareholders will
suffer should Danoff, 55, retire or otherwise leave the fund
suddenly.
"There is a key man risk with Contrafund," said Katie Rushkewicz
Reichart, an analyst at Morningstar who covers the fund. "Not only
has Danoff done quite well but he's managing such a large sum of
money that it's not a role that another person could easily step
into."
Those concerns are an echo of last September, when Bill Gross, who
often referred to himself as the king of bonds, abruptly left Pimco
and his management of the Total Return fund. To be sure, Gross had
his worst performance in nearly two decades in the year before he
left Pimco, and the fund had seen 16 straight months of outflows
leading up to his departure. After his departure, Total Return
suffered $18 billion in outflows in the first month alone, and
another $107 billion between October 2014 and August 2015, according
to Lipper data.
Should Danoff leave, a sizeable rush to redeem shares could force
Contrafund to unload some of its positions in companies such as
Facebook, Apple, and Walt Disney in which it is one of the largest
shareholders, analysts said. Retirement plans, meanwhile, may be
forced to remove the fund from among its investment options because
the fund would no longer have the same management team in place for
at least three years.
Most advisors and institutional investors require at least a
three-year track record with current management before investing,
and the slate is wiped clean if the principal manager leaves without
having three years or more with a co-manager, said Todd Rosenbluth,
director of mutual fund research at S&P Capital IQ.
Fidelity did not make Danoff available for this article, but said
concerns about succession planning are overblown.
"Will is not going anywhere," said Brian Hogan, the head of
Fidelity's equity division. "I can say that with a lot of
confidence. I talk to Will almost every day in person, on phone, or
email. He's tremendously engaged and he's the investment leader, a
real workhorse in the department."
When asked what would happen if Danoff was somehow incapacitated,
Hogan said, "We have a tremendously deep bench of portfolio managers
who may not be household names yet but probably will be."
The problem is unique to Fidelity: the next-largest stock fund run
by a single manager, the T Rowe Price Growth Stock fund, run by
Joseph Fath, is at $44.1 billion under assets, while the third
largest is another Fidelity product, the Fidelity Growth Company
fund, at $39.2 billion, run by Steven Wymer.
'ABSENT-MINDED PROFESSOR'
Since he took over Contrafund in September of 1990, Danoff has
posted an average annualized gain of 13.3 percent, the best
performance of any large cap growth fund over the same time,
according to Lipper data. The benchmark S&P 500 posted a 10 percent
annualized gain over the same time, while the average actively
managed large cap fund returned an annualized 9.4 percent.
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Someone who invested $10,000 in Contrafund in September 1990 would
now have $213,719, more than double the $103,058 gain from investing
in the S&P 500. The average large cap fund, meanwhile, would have
returned $95,586 from the same investment.
That performance is one reason why Fidelity emphasizes the chance to
work with him to potential recruits, and why he leads a meeting each
year with all of the firm's analysts that is said to be standing
room only. Known to carry around a spiral notebook with handwritten
notes on stocks, Danoff meets with hundreds of companies a year, and
has easy access to management at companies who are keen to receive
his endorsement.
Danoff, who joined Fidelity in 1986 as an analyst, has a degree in
history from Harvard and an MBA from Wharton. He's known to walk
around with a bulging file folder and messy hair, a marked contrast
from some of the slickly-groomed fund managers who often show up on
television.
"I love Will Danoff, he's like the absent-minded professor and he
has encyclopedia knowledge of stocks," said David Caruso, managing
director of Danvers, Massachusetts Coastal Capital Group who
oversees approximately $800 million in client assets. "If he were to
leave I would have to think very hard about leaving my assets
there."
Fidelity named John Roth as co-manager of another fund that Danoff
had run by himself, the $27 billion Fidelity Advisor New Insights
fund, in 2013. The move was interpreted by many fund analysts as a
sign that Roth will eventually become Danoff's successor at
Contrafund.
Ford Motor Company announced last month it would drop Contrafund
from its fund lineup, pulling $900 million from the fund. The
company attributed the decision as part of a plan to "best suit the
needs of our employees," while retirement plan analysts said Ford
has been removing funds run by stockpickers.
Unlike competitor T. Rowe Price Group, which emphasizes its hub of
analysts over individual fund managers, Fidelity's reliance on star
managers like Danoff poses a problem for it over the long-term,
Rosenbluth added.
"There's a very small handful of managers who are known, and like
everybody else they are getting older and sooner or later they will
be retiring," Rosenbluth said. "At that point it's not inconceivable
for investors to say I'm just going to choose a Vanguard 500 index
fund from now on."
(Reporting by David Randall; editing by Linda Stern and John
Pickering)
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