March 24, 2015
by Larry Swedroe
Abacab Fund Sees Mispricing In Options As Black-Scholes Has Become “Inadequate”
Abacab Asset Management's flagship investment fund, the Abacab Fund, had a "very strong" 2020, returning 25.9% net, that's according to a copy of the firm's year-end letter to investors, which ValueWalk has been able to review. Commenting on the investment environment last year, the fund manager noted that, due to the accelerated adoption of many Read More
Fidelity’s largest actively managed fund is the Contrafund (FCNTX). It’s also among Fidelity’s top performers, making it their flagship fund, a status previously accorded to the Magellan Fund under Peter Lynch. Will Contrafund investors continue to enjoy outperformance or will they face flagging returns like Magellan’s investors did following Lynch’s departure?
Over the past several months, I’ve taken an in-depth look at a number of the market’s leading mutual funds, ones that have long shown a record of outstanding performance. Today, I’ll continue this series with a detailed dive into the performance of the Contrafund. The fund has been managed by William Danoff since September 1990.
The inception date of FCNTX was in May 1967, under a different manager. As a result, we have a comparatively long history to examine. In so doing, it’s clear that the fund’s reputation for outstanding performance is well deserved. For the 47-calendar-year period from 1968 through 2014, the fund — which Morningstar characterizes as a large-growth fund — has outperformed the S&P 500 Index by a wide margin. Its mandate is to invest in “securities of companies whose value FMR believes is not fully recognized by the public. Investing in either ‘growth’ stocks or ‘value’ stocks or both. Normally investing primarily in common stocks.”
During that time, Fidelity’s Contrafund returned 12.1% versus 10.1% for the S&P 500 Index. And while its annual standard deviation was a bit higher than the S&P 500 Index, 18.2% versus 17.3%, FCNTX’s Sharpe ratio (a measure of risk-adjusted returns) was also greater, 0.46 versus 0.36.
That’s quite a remarkable performance over such a long period.
As we would expect, this type of performance brings with it investor cash flows. And as of this writing, the fund’s assets have grown to about $113 billion. Since growth in assets under management has been shown to increase the hurdles for active managers to generate alpha, I’ll take a look at the fund’s performance over more recent periods.
Assessing the fund’s track record
The table below compares the performance of FCNTX to the S&P 500 Index for the most recent 15 calendar years, from 2000 through 2014.
|Annualized Return (%)||6.9||4.2|
|Annual Standard Deviation (%)||18.9||19.2|
The relative performance of FCNTX during this 15-year period is even more impressive than its full historical record. In this case, the fund not only provided a return 2.7 percentage points higher than the S&P 500 Index, but it did so with a slightly lower level of volatility and an even wider gap in the Sharpe ratio than it posted over its full life.
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