The Hindu Business Line : Kotak Contra: Hold

Mid-cap stocks, which have potential to deliver higher returns, carry higher risk too. Hence, this fund is suitable for investors with moderate risk profile.

Investors can retain their investments in Kotak Contra; however, they should be comfortable with a time horizon of three years. Its return of 19 per cent for the past year appears lacklustre in comparison with diversified funds. So, if this investment is not a part of your core portfolio, you can stay invested. Or else, switch to a diversified fund with a good long-term record. However, by nature, contrarian investment takes time to deliver returns and should not be evaluated over too short a tenure.

Kotak Contra aims to invest in fundamentally strong companies that are temporarily undervalued. It adheres to its mandate and has no concentrated exposures in any of the growth sectors that drove the market to its all-time high in early May.

The fund's tilt towards cyclical and value stocks during this period has not helped generate better returns than diversified funds. The latter were fully invested in growth stocks and reaped the benefit of market-dictated themes.

However, the strategy of contrarian investing has not protected Kotak Contra during the market correction. Mid-cap stocks, which have potential to deliver higher returns, carry higher risk too. Hence, this fund is suitable for investors with moderate risk profile.

Performance: Kotak Contra has registered a return of 30 per cent since inception. During the same period, it has trailed its benchmark CNX-500 by 9 percentage points. In the contra fund space, most of the funds have a short track record, except Magnum Contra. It is the only fund that is really aggressive and returned 47 per cent for the past year. Magnum Contra gradually shifted from mid- to large-cap stocks during the past year. Tata Contra, launched a year ago and pitched against the same benchmark, recorded a 11 per cent return.

Since inception, the fund held close to 45 per cent of the stocks with market capitalisation less than Rs 2,000 crore. During the correction, this vulnerable category was the worst affected. This too affected the performance of Kotak Contra.

Portfolio Overview: Kotak Contra has a highly concentrated portfolio and ferrous and non-ferrous metals account for 18.5 per cent of the asset allocation. Strangely, in the ferrous space, this fund moved completely out of SAIL in June and bought the same in July.

During this quarter, the fund increased its exposure to software. Being a contrarian fund, it actively shuffles its portfolio. The top ten stocks account for 39 per cent of the portfolio. In end-August, the portfolio featured stocks such as Jindal Steel and Power, Jaiprakash Associates and Nahar Spinning among its top holdings. The fund's portfolio P/E of 26.5 is higher than the diversified Kotak Opportunities' 19.6.

Fund facts: Kotak Contra fund was launched in July 2005. It manages assets of Rs 226 crore. Mr Anand Shah is the manager. The entry load is 2.25 per cent.NAV per unit is Rs.12.9

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