Here’s a no-brainer prediction: Will Danoff will quickly emerge as one of the biggest Facebook Inc. shareholders in the mutual fund world once the social media giant goes public later this month.
Danoff, manager of the humungous $84 billion Fidelity Contrafund, already owns a chunk of private Facebook shares for his fund, and I expect he’ll buy more at the initial public stock offering. Dozens of Fidelity funds own shares of Facebook, purchased in private sales last year, but none holds more than Contrafund.
Danoff’s early interest in Facebook follows a familiar pattern that has helped make Contrafund one of the country’s most successful mutual funds over the past two decades. He tries to identify companies that create new markets or turn old ones upside down - buying modestly at first but getting in on the ground floor and holding on for the long haul.
“The key is to identify really game-changing companies and great business people who have a vision in a big enough market so they can grow from a smaller company to a very large one,’’ Danoff once told me.
Contrafund followed the same game plan when Google Inc. went public in 2004. Once again, Danoff already owned shares of the company before the IPO and then bought some more. Stock appreciation and other occasional purchases have boosted the value of Contrafund’s interest in Google to more than $3.8 billion.
Those Google shares have become Contrafund’s second-largest holding, accounting for about 4.5 percent of its assets. In turn, Contrafund is Google’s largest mutual fund stockholder by a wide margin.
“He’s held onto that stock since the IPO and added to it along the way,’’ says Chris Davis, a senior analyst at Morningstar Inc. who follows Fidelity mutual funds. “It’s an example of Danoff playing the long game.’’
Danoff followed a similar strategy when he started buying modest amounts of Apple Inc. stock in 2003, according to Davis. Apple had been a public company for many years, but its stock was in the dumps. Those shares took off before long, thanks to series of product innovations that reshaped the entire consumer electronics industry.
I don’t know what Danoff paid for his original shares but Apple stock traded at an average, split-adjusted price of $9.26 in 2003. It closed at $570.52 per share yesterday. You do the math.
Danoff bought more shares over time, and Contrafund ranks as Apple’s largest mutual fund stockholder today. Apple has become the fund’s biggest investment, worth more than $7.8 billion.
Danoff and other Fidelity managers have owned Facebook shares since the company sold stock privately to a limited number of big investors last year. Contrafund invested more than $86 million and all Fidelity managers sunk more than $200 million combined into Facebook shares, according to John Bonnanzio, executive editor of the independent newsletter Fidelity Insight. He estimates those investments may be worth 50 percent more if the Facebook IPO sells as well as expected.
Would Fidelity be such a large Facebook investor if Danoff had taken a pass? I doubt it. “Danoff is clearly not just a thought leader but the chief executioner when it comes to make deals happen,’’ says Jim Lowell, publisher of the Fidelity Investor newsletter.
Danoff has not been shy about investing in the new wave of Internet companies focused on social media. That includes small investments in two companies that have not fared so well in the public stock market - Zynga Inc. and Groupon Inc.
Facebook won’t become a leading investment in Contrafund anytime soon. Danoff’s fund is so large it owns more than $1 billion worth of shares in 14 different companies. Contrafund has at least $250 million invested in each of 78 stocks.
Contrafund shareholders won’t notice any big changes in their investments - for better or worse - when Facebook goes public. But the hottest IPO of the year is one more part of Will Danoff’s long-term strategy.
The Red Herring
Was it something I said? Former Sovereign Bancorp chief Jay Sidhu pulled the plug on his plans for a new bank initial public stock offering a day after I mentioned it in this space on Tuesday. Sidhu blamed the change of plans at Consumers Bancorp on poor market conditions. Stay tuned.
Steven Syre is a Globe columnist. He can be reached at email@example.com.