SBI Contra Fund: Betting on High Conviction Contra Opportunities

Contra Funds take a contrarian view on stocks and sectors that are temporarily going through a tough phase which impacts their performance and allows distortions in valuations. They usually aim to capitalise on these distortions and take contrarian bets to invest in sectors and stocks that are temporarily out of favour and available at a significant discount to their fair valuation.

Fund managers of Contra Fund have strong convictions in the fundamentals of the sectors and stocks they pick for the portfolio and believe they could perform well in the long run.

SBI Contra Fund is an actively managed scheme in the Contra Fund category that has shown a turnaround performance in the last couple of years and currently figures among the top-performing equity funds.

Past performance is not an indicator of future returns
Data as on February 01, 2023
(Source: ACE MF)

SBI Contra Fund has shown a turnaround performance in the last couple of years which has helped it to generate a significant lead over the benchmark and category peers. In the last 2-year and 3-year periods, SBI Contra Fund has generated a remarkable lead of around 12 percentage points over the benchmark S&P BSE 500 - TRI and also outpaced its peers. The recent outperformance has helped improve its long-term track record as well. Over the longer period of 5 years and 7 years, SBI Contra Fund has managed to record a significant lead over the benchmark, whereas its performance was nearly in line with the category average.

SBI Contra Fund has also shown improvement in terms of risk-adjusted returns. The fund's volatility, as denoted by the standard deviation, is slightly higher than the benchmark and its peers. However, the Sharpe Ratio (0.31) of the fund is currently the highest in the category and way ahead of the benchmark, thus well-compensating investors for the level of risk taken.

Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds

Investment strategy of SBI Contra Fund

Categorised as Contra Fund, SBI Contra Fund has the mandate to invest a minimum of 65% of its assets in equity and equity-related instruments by following a contrarian investment strategy. The balance can be invested in foreign securities, debt and money market instruments, Rights, Derivatives, units of REITs & InvITs, etc. SBI Contra Fund focuses on companies and sectors that are currently out of favour but have the potential to bounce back and grow in the long run. It looks for temporarily neglected stocks which have strong intrinsic value and fundamental attributes. SBI Contra Fund also focuses on under-owned sectors that are out of favour but have high potential to show a turnaround.

SBI Contra Fund aims to timely identify attractive opportunities across market caps and sectors, to benefit from the turnaround potential of the beaten-down or temporarily neglected stocks and out of favour sectors. It usually holds substantial exposure across the market cap spectrum, viz., large-cap, mid-cap, and small-cap stocks. SBI Contra Fund follows a combination of a 'top-down' and 'bottom-up' approach to pick stocks within the contrarian investment theme.

SBI Contra Fund usually holds around 55-65 stocks spread across market caps. As of December 31, 2022, SBI Contra Fund held 71 domestic stocks in its portfolio. The fund has restricted the maximum allocation in each stock to under 5%. The top 10 stocks currently account for 26% of its assets consisting of large-cap and mid-cap stocks such as GAIL (India), ICICI Bank, HDFC Bank, Axis Bank, and Power Grid Corporation, among others. SBI Contra Fund usually records a higher turnover of around 120-270%. It also holds exposure of up to 5% in overseas equities and mutual fund units. Among the overseas equities and mutual funds, Alphabet Inc and Invesco QQQ Trust Series I are currently present in SBI Contra Fund's portfolio.

In the last 2 years, SBI Contra Fund has made the most of the rally in the broader market and has benefited from its holdings in stocks like ICICI Bank, Carborundum Universal, Neogen Chemicals, Axis Bank, Bharti Airtel, The Phoenix Mills, ITC, and Andhra Paper that have together contributed about 16% to its absolute returns in the last 2 years.

SBI Contra Fund's portfolio is not too concentrated towards any particular set of sectors and is currently diversified across 25 sectors. It has the highest sector exposure in Banks, with an allocation of nearly 14%, along with 8.5% in Finance. Power, Engineering, Oil & Gas, Consumption, Infotech, Auto & Auto Ancillaries, Cement, Pharma, and Construction are among the other prominent sectors in the fund's portfolio.

Suitability

SBI Contra Fund has recorded extraordinary performance in the last couple of years, wherein it outpaced the benchmark and its Contra Fund peers by a wide margin. The fund managed to limit the downside risk during the market crash of 2020 compared to the benchmark, while it also stood as the category topper in the ensuing bull phase. Its current fund manager, Mr Dinesh Balachandran, has done well to reverse the fortune of the fund and reward investors with superior gains.

SBI Contra Fund avoids taking concentrated bets on any particular stock or sector. It usually maintains a diversified portfolio of stocks spread across market caps and sectors to benefit from the various opportunities present in the market. Currently, with a higher allocation to non-equity instruments, SBI Contra Fund appears well-placed to stabilise its performance during extreme volatility and capitalise on the buying opportunities in beaten-down stocks in case of a correction.

SBI Contra Fund is suitable for investors seeking an aggressively managed Contra-style fund offering diversification across market caps and having an investment horizon of at least 5-7 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

1. Money Simplified Services Private Limited;

2. PersonalFN Insurance Services India Private Limited;

3. Equitymaster Agora Research Private Limited;

4. Common Sense Living Private Limited;

5. Quantum Advisors Private Limited;

6. Quantum Asset Management Company Private Limited;

7. HelpYourNGO.com India Private Limited;

8. HelpYourNGO Foundation;

9. Natural Streets for Performing Arts Foundation;

10. Primary Real Estate Advisors Private Limited;

11. HYNGO India Private Limited;

12. Suresh Lulla;

13. I V Subramaniam.

1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

1. The Research Analyst has not served as an officer, director or employee of the subject Company.

2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013