Bandhan MF has launched its Contra Fund, which will adopta contrarian investing style but with a growth bias.
Ashish says stocks that are beaten down or ignored don’t automatically become contra plays – some can be value traps. To avoid value traps, visibility of sustainable earnings growth beyond the current challenging situation becomes necessary for stock selection.
Contra investing brings in a margin of safety that you won’t get with momentum investing. But it also comes with the need to be more patient as the idea is to enter when others aren’t and when you see some catalysts likely to play out in the coming quarters.
He says bearish and sideways markets are excellent hunting grounds for contra fund managers, as are early periods of a bull market. However, when bull markets begin to mature, it becomes more challenging to find contra opportunities – one then has to play a relative valuation game to bring in an element of margin of safety.
With markets trading sideways for the last 2 years, this is a good time to build a contra portfolio – hence the launch of this new fund.
Rather than taking contra calls at a sector level, the aim is to go stock specific. For example, IT services which is going through massive disruption will see some players adapting much better than others – it makes sense to bet on those rather than writing off the sector as a value trap.
Same is the case with FMCG majors – Ashish says some represent contra opportunities, others not so.
The portfolio will be sector and cap size agnostic and will have 50-60 stocks to ensure optimal diversification and space to accommodate new ideas.
Contra managers will likely get in earlier than most and will also likely get out before pure growth managers who may try to stay invested through the cycle and through a stock’s momentum highs. That is just the nature of the theme – you don’t stay invested when valuations are running hot as margin of safety is absent.