Invesco India Contra Fund: Identifying Hidden Investment Opportunities

The ongoing market crash has provided attractive opportunities for contrarian investors looking to boost profitability from equity mutual fund investment.

Invesco India Contra Fund (IICF) is one of the prominent players in the contra fund category which looks to identify such hidden opportunities and bet against the herd.

Data as on May 05, 2020
(Source: ACE MF, PersonalFN Research)

IICF has distinctly outperformed its benchmark S&P BSE 500 - TRI across time periods as well as the category average. IICF's returns over the longer time frames of 3-year and 5-year have been remarkable, where it has generated an alpha of around 3.5-4 percentage points.

Kotak India EQ Contra Fund is the other top contender in the contra funds category.

Although IICF has shown higher volatility in performance, it has generated superior risk adjusted returns for its long-term investors. The fund's Sharpe ratio of -0.02 and Sortino of -0.03 is far ahead of its benchmark.

Investment strategy of Invesco India Contra Fund

Being a contra fund, IICF is mandated to invest at least 65% of its assets in equity and equity related instruments following a contrarian investment strategy. Over the past one year IICF had an average allocation of 65% into largecaps. It also holds significant exposure to mid and small cap stocks which together account for around 30% of its holdings.

IICF looks to find hidden opportunities backed by research and expertise. It aims to select mispriced and out of favour stocks of fundamentally sound companies that have potential to grow in the long-term, and stay invested until its full potential is realized.

The fund follows the bottom-up approach to select companies trading below fundamental value, companies in turnaround phase and growth companies available at attractive valuations. It takes active overweight/underweight sector positions w.r.t. the benchmark, based on the top-down view and valuation opportunities.

IICF usually holds a well-diversified portfolio of 45-55 stocks at any point of time. As on March 31, 2020, IICF held a fairly diversified portfolio of 57 stocks, with the top 10 stock holdings accounting for close to 50% of its assets. Highly liquid names like Reliance Industries, HDFC Bank, ICICI Bank, and Infosys currently appear among its top holdings in the fund's portfolio. Most of them have been among the core contenders in IICF's portfolio for a long time.

In terms of sector concentration, the top five sectors in IICF's portfolio accounted for around 50.6% of its assets. The fund held higher weightage to Banking (21.1%) followed by Infotech (12.8%), Petroleum Products (8.9%), Pharma (7.7%) and Auto (6.4%). Finance, Power, Consumption, Telecom and Auto ancillaries are among the other prominent sectors in the fund's portfolio.

Suitability

IICF has rewarded investors with consistent outperformance over the benchmark across time periods and market cycles. Its ability to generate superior risk-adjusted returns helps the fund outscore most other diversified equity funds.The fund has the ability to manage downside risk during extreme market conditions, while it can gear up and participate in market rallies. However, as the fund invests in out-of-favour stocks/sectors, it may temporarily underperform in the short term. This makes the fund suitable for investors with high risk appetite and a long term investment horizon.

Warm Regards,
Divya Grover
Research Analyst

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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.

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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;

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