While there may not be many impressive value and contra funds, there are a few that are worth having on a sizable equity portfolio, suggests Dhirendra Kumar
Have contra funds truly lived up to the concept? Not many fund houses came up with contra funds. Does it mean that the concept didn't click?
- Arnab Bhattacharjee
We, at Value Research and even SEBI's classification have the contra and value funds clubbed together. In India, whenever the equity market has done well, growth has been the flavour and value has been out of favour. But very few of these funds are very impressive. When I look at some good funds in this category, for example Invesco India Contra Fund, they, too, had their lean period.
Many of these funds are in deep slumber, they are very disappointing and most of the returns actually come in a fairly erratic manner but with a sizable return and that is what we have witnessed. These funds require patience and many times, they could be a real test of patience because of the relative underperformance. That's the idea of a contra fund wherein the fund manager is buying a stock which is generally out of favour, he thinks very strongly about it and he fills his portfolio with such positions. As and when these stocks gain favour and traction, these funds start doing well.
So, if you have a sizable equity fund portfolio, a good fund of this kind should be 20-25 per cent of your portfolio because there is a cyclicality in all the segments or sub-segments of the market. Sometimes, small caps do well, sometimes mid caps do well, sometimes growth stocks do well and sometimes value stocks do well. In 2018, we saw that large caps did well and that, too, only a small part of the large cap wherein just four or five stocks of the Sensex were actually driving the market. So, different segments of the market do exceedingly well at different points and that is something which you have to keep in mind.
You should have a diversified portfolio with different kinds of funds. Value funds are something that will come in handy if you are investing in mutual funds, because they bring targeted diversification to your portfolio. So, I would say that some of these funds are impressive. Although this category has been out of favour, some of the funds are beginning to do exceedingly well.