Is There Anything To Be Read Into Ford’s Decision To Dump Fidelity Contrafund From Its 401(k)?
Summary Ford announced last week that it’s dropping Fidelity Contrafund from its 401(k) plan lineup. Fidelity Contrafund has about $113B in total assets. $900M of that comes from the Ford retirement plan. While Fidelity Contrafund is going, the Fidelity Growth Company fund is staying as a plan option. Contrafund’s track record under manager Will Danoff coupled with its low expenses and risk make it a curious choice to be dropped from a retirement plan. It’s not often that the relatively mundane topic of 401(k) investment options makes it into the news but we had one of those instances last week when Ford (NYSE: F ) announced that it was dumping the ultra-popular Fidelity Contrafund (MUTF: FCNTX ) from its 401(k) lineup. Given the fund’s popularity and performance, it seems to be a bit of a curious move. When it comes down to swapping out investment choices in a retirement plan it’s usually due to one of three reasons – below average performance, above average cost or management changes. But looking at Contrafund none of those factors seems to be a reason. Will Danoff has been managing the fund for the past 25 years (as well as a handful of other smaller Fidelity funds during parts of that time frame but Contrafund is clearly the big dog) and his performance record over the course of the last two and a half decades has been nothing short of stellar. Contrafund is currently beating the S&P 500 during the past 1-year, 3-year, 5-year, 10-year and 15-year time frames in addition to doubling the index’s performance year to date. Seems like the type of performance and track record you’d want available in a retirement plan. From a cost standpoint, the current expense ratio doesn’t appear to be a big issue either. The fund’s current net expense ratio of 0.64% compares favorably to other funds in its category and, in fact, has been dropping annually over the last several years. Looking at risk levels , the fund’s beta is currently less than 1 indicating below average risk and according to Morningstar’s own risk rating categorizes, the fund’s risk is either “below average” or “low” depending on the time frame considered. It just doesn’t seem that there are any glaring red flags with this fund. Mainstay Capital, which administers the Ford 401(k) program, states on its website that it simply is ” removing one of the funds” from the plan without naming which one specifically (although it does link to an article explaining that Contrafund is the one being axed). For its part, Ford has said simply that it makes changes “from time to time.” While Contrafund is going, its counterpart, the Fidelity Growth Company (MUTF: FGCKX ) fund, is staying although to be fair, its performance is similarly strong like Contrafund. Contrafund is a $113B behemoth so the estimated $900M outflow the fund will experience thanks to Ford’s withdrawal shouldn’t affect management of the fund in any type of meaningful way. Conclusion It’s a bit odd to think that Ford would drop a fund as popular and well performing as Contrafund but that’s what’s happening. Perhaps the powers that be at Ford feel that Contrafund and Growth Company have overlapping management styles and objectives and are eliminating one as a cost savings measure (Ford has announced that Contrafund won’t be replaced). In that case, Contrafund’s dismissal makes some sense. With other Fidelity funds remaining, one would have to assume there isn’t any type of relationship issue between Ford and Fidelity. My conclusion is that there isn’t really anything to read into this decision. Although this plan change happens to feature one of the biggest and best-known names in the mutual fund world, it appears that more than likely this is simply just part of the normal course of business for Ford. Disclosure: I am/we are long F. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.