Fund Call . Invesco India Contra: Contrarian moves pay off - Buy

The volatile gyrations of the markets over the past few months mean that investors would be better off taking refuge in stable large-cap funds.

Invesco India Contra fits the bill, as it invests mostly in large-cap stocks, with a quality mid-cap portion thrown in to give returns a kicker. Not only is the scheme among the best in its category but Invesco Contra also manages to contain downsides well during market downturns.

Over time frames ranging from one to five years, the fund has outperformed its benchmark, BSE 500, by a margin of 4-8 percentage points. It has picked out-of-favour themes slightly ahead of the markets and has managed to benefit from strong rallies in such segments.

Investors with a moderate risk appetite could buy units of the fund with a horizon of 5-7 years. Given its track record, it may be a suitable addition to the core portion for investors with limited ability to digest market fluctuations.

Its five-year return of 22.3 per cent places it among the best in its category. Investors can buy units of the fund through the SIP route. Opt for the direct plan as under this mode fund charges are just 0.99 per cent compared to 2.26 per cent to be paid if units are purchased through a distributor. Naturally, lower charges would mean an addition of a percentage point more to returns.

Optimal portfolio churn

Invesco Contra invests 70-75 per cent of its portfolio in large-cap stocks and about 20 per cent in mid-cap shares. Depending on the volatility in the markets, the company also takes cash and debt calls to the extent of 5-7 per cent of the portfolio. There is no concentration around individual stocks, with allocation being less than 4 per cent, barring the top few holdings.

The fund does benefit from churning sectors in a manner that is contrarian. For example, when software companies were shunned by the markets, despite being available at cheap valuations in 2016-17, the fund increased exposure and managed to gain from the substantial rally in IT stocks over the past few months. The fund replicated the strategy with banks and financial services companies. Exposure is restricted to quality private banks and NBFCs. The fund has reduced the proportion invested in automobiles over the past one year.

Index names such as HDFC Bank, Reliance Industries, L&T, ITC and Infosys consistently find a place among Invesco Contra’s top holdings. Its mid-cap portion also has some quality names such as KNR Constructions, VIP Industries and Cochin Shipyard.

Invesco Contra has managed to outpace even established performers such as SBI Magnum Multicap and Franklin India High Growth Companies, making it suitable for most long-term investors.

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