Invesco India Contra Fund: Identifying Turnaround Opportunities - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Invesco India Contra Fund: Identifying Turnaround Opportunities
Nov 6, 2020

Prevailing market sentiments predominantly drive stocks, which may cause the inappropriate pricing of some fundamentally sound stocks in the short run, discouraging potential investors.

However in the long run, some of these stocks may grow to reflect their true value and reward investors for their patience. Such stocks could be major beneficiaries of economic recovery.

Contra funds category follows an "against the tide" approach to invest in neglected stocks available at discounted valuations with strong fundamentals. The contrarian investment strategy enables these funds to seek opportunities in high-growth potential stocks that are currently out of favour and stocks in the turnaround phase to reward investors with superior gains.

The strategy assumes that once the short-term distortions in valuation become irrelevant or are completely eliminated, the stocks will bounce back to its real value.

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

--- Advertisement ---
These 3 Stocks are the Dark Horses of the Stock Market

The mainstream media mostly ignores them.

Mutual funds and hedge funds can't buy them in bulk.

Stock brokers rarely cover them.

These stocks are the dark horses of the stock market.

They only come in limelight after they have rallied by hundreads of even thousands of percent.

Our head of smallcap research, Richa Agarwal, has a knack for identifying such stocks before they begin their rally.

Over the years, she has spotted such stocks which have gone on to offer triple and even quadruple digit gains for investors. (* Past performance is no guarantee of future results)

Today, when the markets are near all-time high... and some investors are thinking of booking profits... Richa has spotted 3 such stocks which are set for a massive rally.

She will reveal the details of these 3 stocks on 28th January at her free online summit.

Click here to sign-up instantly. It's free.
------------------------------

Graph 1: Growth of Rs 10,000 if invested in Invesco India Contra Fund 5 years ago

IICF is a contra style fund that follows against-the-tide kind of investing approach. It takes contrarian bets to invest in sectors and stocks that are temporarily out of favour and available at significant discount to their fair valuation. While investing, the fund manager has conviction in the fundamentals of such stocks and believes they could perform well in the long run. As contra funds invest in 'out-of-flavour' themes, they may temporarily underperform in the short term, and hence deserve patience. Launched in April 2007, the fund remained unnoticed for years. However, its spectacular performance in the bull rally of 2016-2017 caught the attention of investors. An investment of Rs 10,000 made in IICF 5 years back would have appreciated by about 12.1% CAGR to Rs 17,723. On the other hand, a similar investment in the benchmark S&P BSE 500 - TRI would have been valued at Rs 15,496 (9.2% CAGR).

BREAKING: Full Details of the #1 Investment of the Decade...

Table: Invesco India Contra Fund's performance vis-a-vis category peers
Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
Kotak India EQ Contra Fund 813 1.66 7.58 5.86 11.18 13.61 21.19 0.04
Invesco India Contra Fund 4,988 5.82 7.13 5.59 12.11 18.74 22.02 0.044
SBI Contra Fund 1,290 5.48 2.73 -2.07 5.35 10.6 22.67 -0.051
S&P BSE 500 - TRI 1.69 6.14 3.17 9.14 11.89 21.85 0.012
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualized
Data as on November 04, 2020
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

With superior returns over the last few years, IICF is a true outperformer. It is a top quartile performer among diversified equity funds and maintains its spot as a top contender in the contra funds category. The fund has distinctly outperformed its benchmark S&P BSE 500 - TRI across time periods. 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 2-3 percentage points.

IICF has impressed on the risk-reward front as well, generating superior risk adjusted returns for its long-term investors. The fund's Sharpe ratio of 0.04 is far ahead of its benchmark.

--- Advertisement ---
Top 3 Stocks for 2020 and Beyond

We've uncovered 3 high-potential tech stocks after years of research.

These 3 cutting edge tech stocks could potentially create a wave of Indian millionaires.

First one is present in the sector which is expected to GROW over 300 times by 2030.

Second one is one of the leading players in Artificial Intelligence technology.

And the third one is involved in putting up a global safety net to save the world from cyber criminals.

These 3 tech stocks have the potential to offer life-changing gains in the long run.

Click here to get the details...
------------------------------

Investment strategy of Invesco India Contra Fund

IICF follows a contrarian strategy where the fund managers pick 'neglected stocks' with strong asset values while focusing on under-owned sectors carrying high potential. The aim is to have a first mover advantage by investing in out of favour sectors/stocks, thus increasing out-performance prospects. In terms of asset allocation, the fund is mandated to invest a minimum 65% of its assets in equity. The fund maintains a large cap bias where it invests around 65% of its assets while it also holds significant exposure to mid and small cap stocks, which together account for around 30% of its holdings.

While managing IICF, the fund managers focus on undervalued stocks trading at a significant discount to their fair valuation with an aim to hold them in the portfolio until their intrinsic value is achieved. Accordingly, the fund managers identify and invest in potentially undervalued stocks across sectors utilizing the top-down and bottom-up approach. They believe in incubating such stocks for a while before they find favour with rest of the market. While the fund managers are in a constant hunt for stocks available at cheap valuations and look at timely entry and exit, moderate churning in IICF's portfolio cannot be ruled out.

Graph 2: Top portfolio holdings in Invesco India Contra Fund

IICF usually holds a well-diversified portfolio of 45-55 stocks at any point of time. As on September 30, 2020, IICF held a fairly diversified portfolio of 45 stocks, with the top 10 stock holdings accounting for close to 52% of its assets. Highly liquid names like Reliance Industries, HDFC Bank, Infosys, and ICICI Bank 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.

IICF has been riding on stocks like Reliance Industries, Infosys, Ajanta Pharma, HCL Technologies, Sun Pharma, etc. that have been the major gainers in the portfolio together contributing around 7% to its returns in the last one year. It also benefitted from stocks like Escorts, BhartiAirtel, Mishra Dhatu Nigam, Tech Mahindra, among others.

In terms of sector concentration, the top five sectors in IICF's portfolio accounted for around 59% of its assets. The fund held higher weightage to Banking (19.1%) followed by Infotech (13.1%), Petroleum Products (12.6%), Finance (8.1%) and Pharma (6.3%). Telecom, Auto, Power, Engineering, Consumption, Consumer Durables, and Construction are among the other prominent sectors in the fund's portfolio.

Suitability

Through the years, it has delivered consistent returns across time periods and market cycles. The fund gives high weightage to fundamentals, long-term price momentum, and outlook of stocks in its portfolio, which even helps it maintain a lead over its peers. Its fund managers keep a strong focus on fundamentals and those stocks that are likely to show sharp earnings recovery.

Being a contra fund, the fund takes an opposing view to the general popular opinion. Hence, the fund may at times underperform over shorter periods. It is suitable for investors having tolerance to volatility and high risk appetite with an investment horizon of 5 years or more.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

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.

Author: Divya Grover

This article first appeared on PersonalFN here.

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

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Invesco India Contra Fund: Identifying Turnaround Opportunities". Click here!

  

More Views on News

Great vs Good: Which Stock Will Win in 2021? podcast (Views On News)

Jan 22, 2021

Rahul Shah discusses which group of stocks performed the best in 2020 and its implications for your portfolio.

One Chart to See Before You Sell (Fast Profits Daily)

Jan 22, 2021

In this video, I'll show you a crucial chart that you need to check before you decide to sell any stock or index.

SBI Small Cap Fund: Discovering Multi-bagger Ideas (Outside View)

Jan 22, 2021

PersonalFN's analysis on the features and performance of SBI Small Cap Fund.

How to Invest in Smallcap Stocks in 2021 and Beyond (Profit Hunter)

Jan 22, 2021

Here's why I believe there is a lot more steam is left in the smallcap rally.

You and Me (Fast Profits Daily)

Jan 21, 2021

An inside look into what happens behind the scenes in my trade recommendations.

More Views on News

Most Popular

Why Gold Hit Lower Circuit (Fast Profits Daily)

Jan 11, 2021

Were you shocked that bullion prices hit lower circuits on Friday on the MCX? Find out why it happened...

Time to Book Profits in Pharma Stocks (Fast Profits Daily)

Jan 15, 2021

In this video, I'll show you why it might be the right time to take money of the table in pharma stocks.

A Rare Chance to Invest in Potential Multibaggers in 2021 (Profit Hunter)

Jan 11, 2021

Our ace stock picker is ready to capitalise on a big growth opportunity.

Smallcap Stocks: Your Best Bet for 2021 and Beyond (Profit Hunter)

Jan 15, 2021

The pandemic failed to thwart Richa's investing success formula for 2020.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jan 22, 2021 (Close)

MARKET STATS