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What are Contra Fund?

What are Contra Fund?

Published on 15 December 2021 Views 18 Comments 0

1. Introduction

This contra fund is different from other funds by its style of investing. In this strategy fund manager takes a contrarian point of view for an asset over a long-term period.

2. Meaning of Contra Fund

Fund manager focuses on investing against the prevailing market trend in assets that are performing poorly and selling them when they perform well. The approach is known as Contra Fund.This hub on identifying neglected stocks that are undervalued today (trading at lower P/E multiple or P/BV), but have a potential of growing in the long term.

3. Difference Between Contra Investing & Value Investing

Contra investing is far more complex than value investing, as the objective is picking stocks that are dumped by the market (available at a cheap price) in the short-term, but nonetheless have the potential to gain in the long-term when the market recognizes its true potential. Hence by doing so, contra investing aims at sailing against the tide by betting on "out of favour" stocks/sectors, in an attempt to gain in the long-term. SBI Contra and Invesco Contra Fund are the two good performing Contra Funds.

A fund house can either take a contra fund or a value fund, not both as per the Sebi recategorization of mutual funds.

4. Performance in Bear Market

  • The portfolios of contra funds have defensive and crushed down stocks that have given negative returns during bear markets.

  • Contra Fund’s portfolio is defensive and gives a better return on stocks that have given negative return during bear market.

Example: Pharma, PSU Banks and Aviation can be considered three sectors that are ‘out of favour’ currently and is being used by Contra or Value investing fund managers.

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