BOSTON (MarketWatch) -- Fidelity Investments is closing its biggest stock mutual fund, the $63.8 billion Contrafund, to new investors along with another fund run by William Danoff after the funds attracted billions of dollars in cash over a year.
As of the close of business April 28, only existing holders will be able to make new purchases in Contrafund FCNTX,
Danoff has managed Contrafund since 1990 and Advisor New Insights since its 2003 inception, Boston-based Fidelity said.
"It's a good move," said Russel Kinnel, Morningstar Inc.'s director of mutual fund research. "In 1996 we wrote, 'Let's say it, Fidelity Contrafund has gotten fat.'"
Jim Lowell, editor of Fidelity Investor, a monthly newsletter based in Needham, Mass., said such closings are typically driven by the manager. Contrafund dethroned Fidelity's flagship Magellan Fund FMAGX,
"I think that Will Danoff, obviously a gifted stock picker and an excellent manager, understands that over the past 12 months he's been running with, on average, about 9% of Contrafund in cash," Lowell said. "That indicates that he is clearly having difficulty putting that cash to work."
Lowell said Danoff is probably afraid that if the large-cap growth market takes off -- and he's not fully invested -- he could trail his benchmark.
Danoff has done an "outstanding" job of managing the funds, "and investors have noticed in increasing numbers," Philip Bullen, chief investment officer overseeing the U.S. large-cap core and capital appreciation groups for Fidelity Management & Research Co., said in a statement.
Investor inflows into the funds have accelerated as a result, with the two funds taking in a total of more than $12 billion in net new cash in the 12 months through Feb. 28, Bullen said.
"And assets have continued to grow," he said. "We believe that closing Contrafund and Advisor New Insights at this time is in the best interests of the funds' shareholders, and stabilizing cash flows will help provide Will with the opportunity to maintain the funds' consistent performance track records."
Still, Kinnel said while the closings will slow inflows, they won't stop money from coming into the funds.
Though the two funds close to new accounts at 4 p.m. Eastern time on April 28, their existing shareholders can continue to add to their accounts.
In addition, employer-sponsored retirement plans and certain discretionary programs offered by registered investment advisers may be able to open additional accounts for investors if the funds were established as an option as of April 28.
"Fidelity is so huge in 401(k)s that their closing of funds does not result in the sort of shutting off of new flows the way it does in other funds," Kinnel said.
Danoff is "one of the best managers around," he said.
"He certainly deserves points for doing so well despite the growing assets," Kinnel said.
According to Morningstar, Contrafund has averaged a 22% return for the three years ended Thursday, beating the Standard & Poor's 500 Index SPX,
Also Friday, Fidelity named Jason Weiner associate portfolio manager of VIP Contrafund Portfolio. VIP funds are offered as part of variable insurance products sold through third-party intermediaries and Fidelity's own variable annuities and variable universal life insurance products.
Weiner will work closely with portfolio manager Danoff in providing additional investment ideas for the fund. Weiner will continue to manage Fidelity Independence Fund, Fidelity Fifty and Fidelity Advisor Fifty Fund.
