This impressive multi-cap fund boasts of a good long-term track record
Though not particularly true to its calling, it's an impressive multi cap player. The fund's objective is to invest in undervalued scrips which could be out of favour at the time of investing, but are likely to show attractive growth over the long term. So if one invests in such a fund, there would be periods when the fund would underperform the category average simply because of its stock picks. But Magnum Contra has underperformed the category average in just two years, out of the 10 of its existence. And both those periods were in its initial years. That's because the fund has toned down on aggression and transformed into a diversified equity offering that tends to stick more with consensus sectors, which would explain its rally in bull runs.
In its initial years, its contrarian sector moves and concentrated stock allocations made it a bold choice. A case in point were the allocations to Metals and Auto in 2000, when its category of multi cap funds were more focused on Technology and FMCG. Not surprisingly, it underperformed the category average that year. In 2001, when the category was bullish on FMCG it avoided it totally, stayed underweight on Healthcare but remained bullish on Auto. Its stand to avoid Technology over those two years was entirely contrarian.
In all fairness, shades of contrarianism do surface. The fund's higher allocation to Auto in 2007 and lower exposure to Financial Services is a case in point. Currently, the fund manager is betting on Oil & Marketing Companies (OMCs) and Petrochemicals. "We have taken a contra call on OMCs, where a lot of pessimism and under ownership has been built due to concerns on the near term outlook. We are positive over the medium term given a strong asset base and reasonable valuations. We also believe the Petrochemicals/refining cycle is near the bottom and so we have a large exposure in that space," says Gupta.
While underweight on IT, he's overweight on Telecom and is more bullish on Utilities, Cement and Hotels, in comparison to his peers. "Despite near term concerns, the underlying fundamentals are strong, there are positive cash flows and reasonable valuations," he says.
What you will find here is a diversified, multi-cap portfolio with a cautious view on contra bets. Its impressive returns of 2004 and 2005 may no longer be replicated, but its long term track record is good.
