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Contrarian By Design

Anindya Bera finds that this contra fund marches to a different drummer and has been fairly successful in doing so...

While some contra funds are just value funds, Religare Contra will be more risky than a regular equity diversified fund. When one looks at the portfolio, the distinct flavour is contra. According to the May 2010 portfolio, there are 19 stocks (out of 42) that few funds in its peer set are betting on.

The fund did not have a blockbuster start, 2008 changed its fortunes for the better. The global crisis hit and the fund manager went defensive with cash calls..As a result, its fall of (-)49 per cent was much less than that of its benchmark (-58%) and its peer set (-60%), which according to our categorisation is mid- and small-cap funds.

Since January 2009, the fund has remained underweight on the financial sector. Currently its weightage of 10.28 per cent (May 2010) is much lower compared to 21.82 per cent of the BSE 500. Even its stock selection within the sector differs.

The small size of the fund enables the fund manager to move in and out of stocks and sectors with tremendous ease. When one looks at the historical data, it is evident that there is a significant amount of churning, both in terms of stocks and sectors. In all fairness, there was significant churning before he took over and once he did, it was to revamp the portfolio to his style. As mid caps rallied significantly, the fund manager began to hike up the allocation to large caps, which he claims is a pure valuation call.

Ever since Subramaniam took over the fund in end 2008, he revamped the portfolio but up to March 2009, when the market began to rally, he never went below 90 per cent in equities. That put him in a great position to benefit from the upturn. Combined with his mid- and small-cap tilt, the returns were impressive.

What you have here is a portfolio with a mid- and small-cap bent which has been churned fairly rapidly. It also takes on a riskier tilt due to its stock selection process. However, its performance in 2008 when the market was falling can hardly be ignored. And neither can the numbers put up in 2009. This fund can add a dimension to one's equity portfolio, but investors need to hang on for a while to give the fund manager time for his bets to play out.