Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed SBI Contra Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.
SBI Contra Fund is the largest scheme in the Contra Fund category that has shown a remarkable turnaround in performance over the past few years, positioning itself among the top-performing equity funds.
What is the growth of Rs 10,000 invested in SBI Contra Fund five years ago?
Past performance is not an indicator of future returns
Data as of October 10, 2023
Launched in July 1999, SBI Contra Fund is mandated to follow a contrarian strategy. It focuses on investing in beaten-down stocks and out-of-favour sectors to capitalise on the prevailing opportunities.
Accordingly, the fund holds a well-diversified portfolio of fundamentally sound stocks available at a discounted price, spread across market caps and sectors. Notably, the fund failed to grab the attention of investors for a major period of its existence due to its subdued performance in the past, wherein it constantly trailed the benchmark and its peers. Moreover, due to its significant exposure to stocks in the broader market, SBI Contra Fund’s performance derailed completely during the mid and small-cap crash of 2018-19.
Nonetheless, SBI Contra Fund has shown a turnaround performance in the past few years to find a spot among the top performers in the category. The fund managed to limit the downside risk during the market crash of 2020 compared to the benchmark, while it also stood as the category topper in the ensuing bull phase.
Over the last 5 years, SBI Contra Fund has appreciated at a CAGR of around 23.4%, which is much higher than the 16% CAGR delivered by its benchmark S&P BSE 500 – TRI index. An investment of Rs 10,000 in SBI Contra Fund five years back would have now appreciated to Rs 28,316 compared to Rs 20,832 for a simultaneous investment in its benchmark.
[Read: Contra Funds: Are They Right for You?]
How has SBI Contra Fund performed in the past?
Scheme Name | Corpus (Cr.) | 1 Year | 2 Year | 3 Year | 5 Year | 7 Year | Std Dev | Sharpe |
SBI Contra Fund | 14,128 | 28.36 | 19.35 | 38.35 | 23.39 | 17.05 | 15.32 | 0.56 |
Kotak India EQ Contra Fund | 1,785 | 24.56 | 11.42 | 25.18 | 18.17 | 16.57 | 14.49 | 0.40 |
Invesco India Contra Fund | 11,097 | 19.14 | 9.96 | 23.53 | 17.16 | 15.96 | 14.76 | 0.36 |
S&P BSE 500 – TRI | 16.56 | 7.34 | 22.49 | 16.04 | 14.06 | 15.03 | 0.34 |
The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of October 10, 2023
(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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
SBI Contra Fund has shown a turnaround performance in the last few years which has helped it to generate a significant lead over the benchmark and category peers. Its current fund manager, Mr Dinesh Balachandran, has done well to reverse the fortune of the fund and reward investors with superior gains. In the last 1-year, 2-year and 3-year periods, SBI Contra Fund has generated a remarkable lead of around 12-16 percentage points over the benchmark S&P BSE 500 – TRI and also outpaced its peers.
The outperformance in recent years has helped improve its long-term track record as well. Over the longer period of 5 years and 7 years, SBI Contra Fund has managed to record a significant lead over the benchmark, whereas it also outperformed many of its peers.
SBI Contra Fund has also shown noteworthy improvement in terms of risk-adjusted returns. The fund’s volatility, as denoted by the standard deviation, is nearly in line with the benchmark and its peers. However, the Sharpe Ratio (0.56) of the fund is currently the highest in the category and way ahead of the benchmark, thus well-compensating investors for the level of risk taken.
What is the investment strategy of SBI Contra Fund?
Categorised as a Contra Fund, SBI Contra Fund has the mandate to invest a minimum of 65% of its assets in equity and equity-related instruments by following a contrarian investment strategy. The balance can be invested in foreign securities, debt and money market instruments, Rights, Derivatives, units of REITs & InvITs, etc. SBI Contra Fund focuses on companies and sectors that are currently out of favour but have the potential to bounce back and grow in the long run. It looks for temporarily neglected stocks which have strong intrinsic value and fundamental attributes. SBI Contra Fund also focuses on under-owned sectors that are temporarily out of favour and have high potential to show a turnaround.
SBI Contra Fund aims to timely identify attractive opportunities across market caps and sectors, to benefit from the turnaround potential of the beaten-down or temporarily neglected stocks and out of favour sectors. It follows a combination of a ‘top-down’ and ‘bottom-up’ approach to pick stocks within the contrarian investment theme. The fund usually holds substantial exposure across the market cap spectrum viz. large-cap, mid-cap, and small-cap stocks. Its current allocation is 37.1% in large-caps, 25.4% in mid-caps, and 14.4% in small-caps.
What are the top portfolio holdings in SBI Contra Fund?
Holding in (%) as of September 30, 2023
(Source: ACE MF)
SBI Contra Fund usually holds a well-diversified portfolio of around 70-80 stocks spread across market caps. As of September 30, 2023, SBI Contra Fund held 84 domestic stocks in its portfolio and restricted the maximum allocation in each stock to well under 5%. The top 10 stocks currently account for 23.1% of its assets comprising large-cap and midcap stocks such as ICICI Bank, GAIL (India), HDFC Bank, Punjab National Bank, and ONGC. Following an active management strategy, SBI Contra Fund usually records a higher turnover of around 230-280%. It also held an allocation of 4% in overseas equities having invested in Cognizant Technology Solutions Corporation and EPAM Systems.
In the last 2 years, SBI Contra Fund has made the most of the rally in the broader market and has benefited from its holdings in Tube Investments of India, Wendt (India), ITC, Ingersoll-Rand (India), Esab India, Andhra Paper, ICICI Bank, and Neogen Chemicals that have contributed the most to its returns in the last 2 years. Axis Bank, Bharti Airtel, Carborundum Universal, Automotive Axles, NHPC, Kalpataru Projects International, and SBI stood among the other top gainers in the portfolio.
SBI Contra Fund’s portfolio exhibits a well-diversified approach, and it is currently spread across 26 sectors without being excessively concentrated in any particular set of sectors. The fund’s highest sector exposure is in Banks with an allocation of 15.6%, along with 2.8% in Finance. Infotech, Pharma, Oil & Gas, Power, Engineering, Auto, and Cement are among the other prominent sectors in the fund’s portfolio.
Is SBI Contra Fund suitable for my investment goals and risk tolerance?
SBI Contra Fund refrains from taking concentrated bets on any specific stock or sector. It usually maintains a well-diversified portfolio of stocks spread across market caps and sectors aiming to capitalise on the various opportunities present in the market. Additionally, the fund allocates a portion of its assets to overseas equities, allowing it to benefit from geographical diversification and opportunities in the offshore markets.
SBI Contra Fund maintains a higher allocation to mid-cap and small-cap stocks, which can lead to significant gains during favourable market conditions. However, it also means that the portfolio may experience higher volatility during extreme market conditions.
Currently, with a higher allocation to non-equity instruments, SBI Contra Fund appears well-placed to capitalise on the buying opportunities in beaten-down / undervalued stocks in case of a market correction.
SBI Contra Fund is suitable for investors seeking an aggressively managed Contra-style fund offering diversification across market caps with a time horizon of at least 5-7 years.
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.
This article first appeared on PersonalFN here