Already invested in shares and diversified equity mutual funds? Then you should consider Magnum Contra.
The investing philosophy
A normal diversified equity fund is one that invests in the stocks of various companies in different sectors. Magnum Contra does the same thing.
However, as the name suggests, it will follow a contrarian view to investing and takes contrarian bets on stocks. This means the fund manager will deliberately bypass the popular stocks that everyone else is chasing. Instead, s/he will pick stocks that have the potential to appreciate (rise in price over time) but are undervalued and out of favour with other investors.
The fund manager will focus on stocks that have strong fundamentals but are trading at a significant discount to their intrinsic value. In layman's terms, this refers to a stock whose share price is, say, Rs 15 right now but has the potential to be Rs 100 over a period of time. Yet, it does not feature in the 'favourite list' of other stock pickers.
In other words, the fund managers of such funds will invest in companies that are out of fashion, yet sound. These will be stocks that are strong on fundamentals, but whose value is not yet recognised by the market. To put it very simply, it is like buying umbrellas in winter to sell them in the monsoon.
If the fund manager makes some good picks, the returns could be phenomenal.
The returnsLast year, Magnum Contra pulled off an exceptional return of 64.49% to emerge as the second hottest diversified equity fund.
As on September 5, 2005, this fund has raced ahead to deliver 56.45% since the beginning of the year. During this same period, other diversified equity funds have delivered an average of just 32.88%.
The popularity of Magnum Contra can also be gauged from its asset growth (the amount of money that investors have poured into it) in the last year. In June last year, the fund was managing Rs 22 crore of investor money. Today, investors have invested Rs 558 crore in this fund.
Returns over one year: 111.25%.
The average return of a diversified equity fund over this same period is 66.72%.
Returns over three years: 79.62%.
The average return of a diversified equity fund over this same period is 55.34%.
Returns over five years: 46.24%.
The average return of a diversified equity fund over this same period is 23.49%.
As can be seen, the fund has outperformed its peers.
The fund's investments
Fund manager Sandip Sabharwal manages Magnum Contra in a relatively aggressive fashion.
He does not hesitate to take high exposure to any particular stock or sector if he is convinced about it.
For example, the fund allocated 9.51% of its total assets to Gujarat Ambuja Cements in August 2004. This means Gujarat Ambuja accounted for 9.51% of the fund's investments in the stock market.
Similarly, 30% of total money invested was channelised into just five stocks in the last one year.
~ Infotech
In the early years, the fund didn't touch the infotech sector. So, when tech stocks boomed in 1999 and early 2000, it did not benefit.
When the market fell in 2000 and the prices of all tech stocks dropped to abysmal levels, the fund suffered as the value of the stocks it had invested in also fell.
~ Construction
In recent times, the fund has profited from its large investments in construction. Picks like IVRCL Infrastructures, Kajaria Ceramics, Nagarjuna Construction and Shree Cements have been proved highly rewarding.
~ Healthcare
Except for June 2003 when it added Wockhardt and, later, Cipla (November 2004), the fund has not invested much in the healthcare sector.
~ Other sectors
In the textile sector, the fund has been consistently investing only in Arvind Mills since April 2004 in a sizeable quantity.
Select automobiles and metal stocks too have boosted the fund's returns.
If you would like to read more on the fund manager's investing strategy, read fund manager Sandip Sabharwal's interview --Investing is an art, not a science.
Why you should invest in this fund
Magnum Contra is a reasonably diversified fund. Most existing funds are focused either on large-cap, mid-cap or blue chip stocks. This fund lets you add another investing style to your portfolio.
It has delivered great returns till date.
It's Net Asset Value as on September 13, 2005, was Rs 22.81.
A number of investors question as to why the fund's NAV is so low despite such great returns.
Magnum Contra Fund introduced the growth option very recently -- May 9, 2005 to be precise. Prior to that, it only had the dividend option.
In a dividend option, the profits get distributed to the unit holders regularly. In a growth option, the profits are reinvested in the fund which boosts its NAV.
To understand growth and dividend schemes in detail, read The best mutual fund scheme for you.
The fund has declared five dividends till date; these dividends were declared in the years 2003 and 2004. Take a look at the dividends declared in the table below. They are a percentage of the face value of a unit. Each unit has a face value of Rs 10.
|
Date |
Dividend |
|
September 11, 2003 |
12% |
|
October 24, 2003 |
33% |
|
November 12, 2003 |
25% |
|
January 28, 2004 |
30% |
|
November 10, 2004 |
21% |
As a result, despite the fact that the fund has generated good results, its NAV has not grown as phenomenally as that some of the other funds.
Right now, because of the bull run, this fund is doing phenomenally well. Based on the type of stocks that the fund manager will invest in, this fund may appear unattractive in the short-term. Over the long run, you could reap some great returns.
Do note, it may take a long time to deliver attractive returns. Therefore, you should invest in the fund if you have the patience and are willing to block your money for some time.
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