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Has Magnum Contra delivered?
Personalfn.com | July 15, 2008 09:11 IST
Contra investing draws from value investing and is regarded as a subset of the latter. It entails investing in fundamentally strong companies/sectors/themes that are presently out of favour. In other words, the fund manager takes a bet that is contrary to the popular trend in the markets and hence the name contrarian investing.
A contra fund operates on the premise that investment opportunities fall in two categories a) those that are identified by most investors and therefore already form part of their portfolios and b) those that are ignored or not yet identified. Since investment opportunities under Category A are identified by most they are overbought and are therefore trading at higher valuations.
The investment opportunities in Category B are what really interest the contrarian investor. These opportunities come by way of temporary/short-term occurrences which make fundamentally strong stocks/sectors attractive investment propositions for the investor. When markets turn around, these investment opportunities tend to get valued in line with their fundamentals and investors clock a return based on the uptick.
Continuing with our series on mutual fund reviews, we profile the most popular contra fund in the industry - Magnum Contra Fund (MCF).
MCF's investment proposition
One distinct feature that sets the fund apart from other contra/value funds is its investment strategy of blending contra investing with an aggressive growth approach. This involves aggressive churning to align consistently with the investment objective.
How Magnum Contra Fund fares vis-�-vis peers
For the purpose of peer comparison, we have considered value and contra funds that have been in existence for a minimum 3-Yr period.
Over the 3-Yr time frame, MCF's NAV has posted 28.7% CAGR (compounded annual growth rate) and ranks second in its peers group. DSP ML Equity (30.6% CAGR) tops the rankings, while UTI Master Value (12.1% CAGR) languishes on the lowest rung.
Over the 5-Yr time frame, MCF (49.6% CAGR) fares the best among peers, followed by DSP ML Equity (41.8% CAGR) and Templeton India Growth (33.5% CAGR). Since inception in July 1999, MCF has clocked a growth of 28.8% CAGR.
MCF has outperformed its benchmark index i.e. BSE 100 over the 3-Yr and 5-Yr time frames.
The above graph clearly underlines the superior performance pitched in by MCF as compared to its benchmark index i.e. BSE 100. Rs 100 invested in MCF at inception (July 1999) would have grown to approximately Rs 985 at present. The same amount invested in the benchmark index would have appreciated to Rs 346.
What should investors do?
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