SBI Contra Fund: One of the best contra funds for volatile market

Apr 27, 2022 / Advisorkhoj Research Team | 13 Downloaded |  2521 Viewed | | | 2.5 |  5 votes | Rate this Article
Mutual Funds article in Advisorkhoj - SBI Contra Fund: One of the best contra funds for volatile market
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What is a Contra Fund?

Contra fund are equity mutual fund schemes which follow the contrarian investment style, where you invest in stocks that are currently out of favour in the market. Contrarian fund managers invest in stocks or sectors in which they expect price recovery in the future. Since contrarian investors usually buy stocks at deep discounts relative to their intrinsic value, they can get good returns in the long term.

Many investors confuse contrarian investments with value investing. However, the two are different. Value funds invest in stocks which are trading at discount to their intrinsic valuation. Contra fund managers invest in stocks which are currently out of favour because the market does not expect them to do well, but the fund manager does.

Why contra is a good strategy in volatile markets?

The Nifty 50 TRI has nearly doubled after the COVID-19 crash in Q1, 2020. Valuations of many stocks got overheated during this bull market. We are seeing volatility in the market for the last 2 months. While valuation of many stocks would have come down, we cannot say for sure that they are cheap now. We may continue to see volatility in the coming weeks or months due to the War in Ukraine, high commodity prices and possible interest rate hikes by the central banks. However, the long term outlook for Indian equities is bright, as the economy recovers from recession. According to IMF, India is the fastest growing major economy in the world.

For investors, who want to invest for the long term and do not want high volatility, contra funds may be good investment opportunities. Contrarian investment involves doing the opposite of what the majority of investors are doing and try to buy stocks which have been neglected by the market. In volatile markets, contra funds can buy stocks with strong earnings growth potential at very low prices. Since these are usually stocks, which the market is ignoring and trading at low prices, they are relatively less affected by volatility. Once the stock is able to unlock its growth potential, it can create high alphas for investors.

About SBI Contra Fund

SBI Contra Fund is the best performing contra funds over the last 1 to 3 years. The scheme was launched in July 1999 and has Rs 4,209 Crores of assets under management (as on 31st March 2022). The expense ratio of the scheme is 2.29% (as on 31st March 2022). If you had invested Rs 10,000 in the scheme at the time of its inception, your investment would have multiplied more than 12 times to Rs 1.25 lakhs (as on 25th April 2022). The CAGR returns of this scheme since inception is 16% (as on 25th April 2022). Dinesh Balachandran is the fund managers of this scheme.

Performance of SBI Contra Fund

The chart below shows the growth of Rs 10,000 lump sum investment in the fund over the last 5 years ending 25th April 2022. The scheme gave 15% CAGR return over this period outperforming the broader market index (Nifty 500 TRI) which gave 14.4% CAGR return.


Mutual Funds - Growth of Rs 10,000 lump sum investment in the fund over the last 5 years ending 25th April 2022

Source: Advisorkhoj Research


The chart below shows the annualized (CAGR) returns of SBI Contra Fund over different time-scales versus the category average. You can see that scheme has outperformed the category average across all three time-scales.


Mutual Funds - Annualized (CAGR) returns of SBI Contra Fund over different time-scales versus the category average

Source: Advisorkhoj Research


SBI Contra Fund – Investment Strategy

The scheme focuses on companies and sectors that are currently not in favour of the markets and attempts to find companies that have the potential to revert back and grow in the long-term

  • Sector level

    • Identifying sectors which have long term potential but are currently out of favour.

  • Stock level:

    • Identifying companies wherein the stock is trading at lower than its intrinsic value. The focus is on identifying neglected stocks that are undervalued today (trading at lower P/E multiple or P/BV), but have a potential of growing in the long-term.

    • Companies which have strong fundamentals but are available at discounted values owing to short term performance issues.

Wealth creation by SBI Contra Fund

The chart below shows the growth of Rs 10,000 monthly SIP in SBI Contra Fund over the last 10 years (ending 25th April 2022). You can see that with a cumulative investment of Rs 12 lakhs you could have accumulated a corpus of nearly Rs 29 lakhs over the past 10 years. The annualized SIP return of the scheme was 16.5%.


Mutual Funds - Growth of Rs 10,000 monthly SIP in SBI Contra Fund over the last 10 years (ending 25th April 2022)

Source: Advisorkhoj Research


Why invest in SBI Contra Fund?

  • With uncertainty about commodity prices (e.g. crude oil), inflation and interest rates in current geo-political situation, equity markets may continue to remain volatile in the near term.

  • Contra funds may be good investment option in such conditions, as it may have lesser downside risks and offer superior risk return trade off in the long term.

  • You may be able to invest in quality stocks at low prices through contra funds.

  • SBI Contra Fund has strong long term performance track record. It has been a proven wealth creator for investors.

  • Industry veteran, Dinesh Balachandran has been managing this scheme for 17 years. The long continuity of the fund manager has ensured consistency in investment approach, strategy and performance.

Who should invest in SBI Contra Fund?

  • Investors looking for long capital appreciation using contrarian investment strategy.

  • Investors with high to very high risk appetites.

  • Investors with long investment horizons e.g. minimum 5 years.

  • Investors may invest in the scheme through SIP.

Investors should consult with their financial advisors, if SBI Contra Fund is suitable for their investment needs.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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