ICICI Prudential MF has launched its Contra Fund – which will bring into play its well known contrarian thought process into a 100% pure contra portfolio – something that may not be possible in many of its other equity funds.
Naren is very clear that this fund will be totally true to label – it will only look at underperformers that are undervalued and underowned, where his team can see turnaround triggers on the horizon.
The fund will not extend the definition of contra to mean considering well owned and performing stocks where his team has a more bullish view than consensus. That’s not contra in his view.
The portfolio will adopt a true go-anywhere benchmark agnostic approach, will therefore have a high active share and he would prefer it to have 30-35 high conviction stocks rather than 70-75 stocks.
This strategy will take investors through a likely volatile journey as contra opportunities are not steady compounders and can take time to play out.
However, buying with margin of safety that comes with a true contrarian approach when coupled with a willingness to ride the journey when stocks get going, can offer investors a higher long term alpha compared to most other strategies.
Naren says that those investors who do SIPs in small cap funds in the quest for higher long term alpha while accepting more volatile journeys should consider starting a SIP in ICICI Prudential Contra Fund – it promises higher long term alpha albeit with volatility – but by painting on an unfettered canvas across market caps, unlike small cap funds that have to invest only in small caps.