Magnum Contra is up 30 % in 2002 till July, while the market has been in a sustained bear grip and the market is down 8 % on the Sensex. Its contrarion view on petroleum and metals stocks has been hugely rewarding in recent times.
But the inherent danger of the contrarion strategy is that it could well test an investor's patience without going anywhere. Simply put, its strategy implies that the fund will abstain from the fancied stocks in the market. And in a growth lead market, this could be frustrating. As it happened soon after its launch in July 1999. The fund escaped the frantic growth of technology stocks. Indeed, the converse was as true and helped it escaped the free fall as well. The other risk is that a fundamentally undervalued stock can remain so for unfavourable market dynamics. Besides, the reason for a stock being out of favour can worsen. For such issues, year 2000 was turbulent for the fund when it lost 35% while the Nifty lost only 13.75%. Its bet on Hindustan Sanitaryware and Gujarat Ambuja went awry.
Magnum Contra has stuck to its core value strategy in the three years of its existence, focussed on large capitalisation stocks. Even in the roaring tech boom, its only technology position was in Bharat Electronics, accounting for a less than 5%. The deep value acquisitions has been notably outstanding, thanks to the boom in PSU stocks. It bought HPCL at a bargain basement price of Rs. 140 in December 2000 when it traded at price-earning multiple of 4.77 and a price-to-book value of 0.77. Nalco was another success story in the portfolio. Today, the fund is tilted to Automobile and Metal stocks. Its key bets include – TISCO, Bajaj Auto and Hero Honda, which together account for 22 per cent of the portfolio. These stocks have also provided the needed elevation to the fund. Currently, 15.28 % of the fund is in cash, awaiting right buy opportunity.
Besides an outstanding performer, Magnum Contra is an attractive value fund for its large cap bias, portfolio consistency and its long-term orientation, essential to its success. It has emerged as a good choice for investors with patience seeking a disciplined value portfolio.
This article was originally published on August 05, 2002.
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