The Hindu Business Line : Magnum Contra: Invest

The current market correction has provided an opportunity for fresh investors to build a portfolio of core funds with a solid track record. Magnum Contra, with a nine-year track record, has not only performed well in market rallies but weathered bear phases that were far worse than the present one. The fund continues to be among our top picks for an investor’s core portfolio.

The fund has returned 28 per cent since inception on a compounded annual basis. In other words, a lump-sum of Rs 10,000 invested at inception (July 1999) would have now grown to over Rs 92,000! Had you invested a similar amount (on a similar date) in the Sensex, you would be holding a relatively insignificant amount of Rs 30,000.

Investors who do not track the market actively can consider the systematic investment plan route over at least a three-five-year period. Discerning investors can consider value averaging by buying lump-sum units on market declines, such as the present one.

Suitability: For the performance chasers looking at the top returning funds, Magnum Contra’s performance over a shorter time frame of 1-2 years may appear to be mediocre. However, the consistency with which it has beaten its benchmark BSE-100 over the last three years makes it a good investment case for a core portfolio.

The fund would fit well into a portfolio of an investor with average risk appetite.

However, it may no longer fit the bill of a true contrarian investor as, over the last few years, a good number of its stock and sector calls have moved with the market crowd.

At present, the fund appears to follow an aggressive growth strategy with an occasional contrarian sector stand.

Performance: Magnum Contra has lost close to 9.5 per cent of its NAV per unit over the last year. The decline, nevertheless, is less than the diversified fund category average of -11 per cent. Among funds with a long track record, only those with a heavy large-cap focus (such as Kotak 30, DSPML Top 100) have fallen less. Magnum Contra has beaten its benchmark 63 per cent of the times on a monthly return basis over the last 36 months, suggesting its consistency in performance. Risk-adjusted returns (denoted by the Sharpe ratio) also place the fund at par with those such as DSPML Equity.

The fund has also weathered bear phases more severe than the current one; in 2000, it lost over 45 per cent (its worst year). The fund, however, made a steady comeback and witnessed it peak performance in 2003-04, with over 160 per cent returns.

Portfolio: While energy remains among the fund’s top sectors, it appears to oddly favour the automobile sector with exposure of over 9 per cent. This appears to be a contrarian stand at a time when very few funds favour the sector, given the declining auto numbers and climbing interest rates. The NAV per unit under the growth scheme is Rs 38.9

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