Mutual Funds

Invesco India Contra Fund: Going against the grain

Anand Kalyanaraman | Updated on October 18, 2020 Published on October 18, 2020

The fund’s contrarian approach and value focus have helped it deliver well

Amidst the whipsaw in the market this year, a few funds have stood out thanks to their good show. Invesco India Contra Fund, for instance, has been a top performer with a return of about 10 per cent over the past year, compared with the 8 per cent of its benchmark S&P BSE 500 TRI and 4 per cent of the equity value-oriented category.

Over the long term, too, Invesco India Contra is a benchmark-beater and top-quartile performer, with annualised returns of about 11 per cent over five and 10 years. Containing downsides and participating well in upsides — thanks to a value-investing approach — has helped the fund deliver.

On a daily rolling return basis, too, the fund has a good long- term record of consistent outperformance. It seeks to deliver higher return at lower risk than the benchmark.

 

In search of turnarounds

As its name suggests, Invesco India Contra follows a contrarian investment strategy — preferring companies that are in a turnaround phase and trading below their fundamental value. The fund also seeks growth companies at attractive valuations.

For instance, as of June 2020, more than 60 per cent of the fund’s portfolio was invested in what it perceived as undervalued or turnaround stocks.

These included Bharti Airtel, Sun Pharmaceutical Industries, HCL Technologies, Escorts, UltraTech Cement, ICICI Bank and Maruti Suzuki India.

The preference was for cyclical stocks that could be beneficiaries of economic recovery.

In general, the fund’s price-to-earnings ratio has been lower than that of the benchmark. Over time, some of the value picks transition into growth stocks.

The fund follows an active investing approach with significant deviations in sector weights vis-à-vis the benchmark.

It has the flexibility to invest in stocks across market capitalisations (thus avoiding the problems currently being faced by multi-cap funds).

That said, the chunk of its holdings is generally in quality large-caps (more than 65 per cent as of September 2020) — this lends some stability in volatile markets. The smaller stocks in the portfolio — mostly mid-caps — that aid returns are quality ones, too. The return on equity of the fund’s portfolio has been higher than that of the benchmark.

The fund remains mostly invested in equity (about 97 per cent currently) with the rest in mutual fund units and cash/equivalents. It is managed by Taher Badshah and Dhimant Kothari. Those seeking investments in under-valued and overlooked stocks can buy the scheme’s units.

Portfolio

The fund has a well-diversified portfolio with 45 stocks as of September 2020. The top holdings of the fund include bluechips such as Reliance Industries, HDFC Bank, Infosys and ICICI Bank. Except for these, the weight of the other stocks in the portfolio is below 5 per cent.

Banks are the largest sector in the fund’s portfolio followed by software and petroleum products.

Over the past year, the scheme has increased its exposure to software, telecom and refining stocks, while reducing exposure to auto, PSU banking and cigarette stocks.

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Published on October 18, 2020
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