Fidelity reopens two key mutual funds

Fidelity reopens two key mutual funds

The world's largest mutual fund manager unlocks Contrafund and its Low-Priced Stock Fund to offset withdrawals.



BOSTON (AP -- Fidelity Investments on Tuesday said it will reopen its largest stock mutual fund, the nearly $45 billion Contrafund, and another $17 billion fund to offset investors' withdrawals and potentially take advantage of buying opportunities for currently inexpensive stocks.

New investors will again be able to buy shares of Contrafund and Fidelity's Low-Priced Stock Fund on Dec. 16. Contrafund has been closed to new investors since April 2006, with the Low-Priced Stock Fund off-limits since December 2003.

"Since the funds have been closed, they have not been able to generate sufficient levels of new sales to offset current and future redemptions," said Walter Donovan, president of Fidelity's equity division.

Like nearly all mutual funds, Contrafund and Low-Priced Stock have suffered big losses in declining markets this year. Contrafund is down nearly 43% year-to-date, nearly identical to the decline in the Standard & Poor's 500 index, according to Morningstar Inc. Low-Priced Stock is down nearly 46%.

Boston-based Fidelity, the world's largest mutual fund manager, said 88% of Contrafund's assets are earmarked for retirement, with 85% for Low-Priced Stock. That means more and more of the funds' mostly older investors will be redeeming investments - especially riskier holdings in stock mutual funds - to pay for needs after their working lives.

Investors redeemed more than $1 billion from Contrafund in the July-through-September period, according to Financial Research Corp. And that was before markets tanked in October and November, months for which individual fund redemption data aren't yet available.

Will Danoff, Contrafund's manager since 1990, said he sees buying opportunities.

"If we can garner some inflows to balance redemptions that will continue to occur due to natural attrition, I'll have cash on hand to be able to act quickly on my best ideas," said Danoff, whose fund invests in domestic and foreign stocks, including long-established value stocks as well as growth stocks.

Christopher Davis, Morningstar's lead Fidelity analyst, said both funds that Fidelity is reopening remain big and unwieldy to manage. But reopening the funds could improve performance that has been hampered by the need to sell off assets to meet redemption orders, he said.

Without new investors to offset redemptions from existing clients, "managers will be selling stocks at lows, and it will be difficult to buy attractive and cheap companies," Davis said.

Tuesday's moves come nearly 11 months after Fidelity (FNF, Fortune 500) reopened its Magellan Fund, which also had seen many retirement-age investors withdraw cash.

But that fund's reopening hasn't yielded better performance at Magellan, whose once-stellar returns under star manager Peter Lynch helped fuel Fidelity's rapid growth in the 1980s. Magellan is down more than 56% so far this year, according to Morningstar, with assets at $21.9 billion - down from a peak of $102 billion in 2000.

When Contrafund closed more than three years ago, that fund's assets stood at $65 billion, after the fund posted inflows of $7.7 billion in 2005.

CNN