Off The Beaten Track - UTI Contra Fund

Having a contrarian view means not believing in the herd mentality. It implies investing in a manner that differs from conventional wisdom in the market. One of the benefits of having a contrarian view is buying mispriced stocks (mainly due to the market sentiments) with distressed valuations, i.e. similar to value investing. Even investment guru Warren Buffet, reputed for his contrarian views, believes that the best time to invest in a stock is when short-sightedness of the market has beaten down the price. However, whether holding such a view is really beneficial or not is a topic that can be debated since such an investment style also carries higher risk.

This particular fund is a multi-cap diversified fund that follows the contrarian investment strategy while investing in companies which are fundamentally strong with long-term growth potential and are available at attractive valuations. The fund uses the combination of both, the top-down and bottoms-up approach for stock selection. As per the fund manager, FMCG and pharma sectors underperformed in the market during 2007 and thus, true to its contrarian investing, the fund invested in these sectors. And for 2008 these sectors outperformed, which benefited the fund significantly. The fund is currently bullish on sectors like financial services (20 per cent), energy (14 per cent), FMCG (12 per cent) and telecom (8 per cent). At the same time, the fund has reduced its exposure to pharmaceuticals due to very high valuations and to the auto sector due to deteriorating credit environment.

Sanjay Dongre manages this fund and also manages funds like UTI Infrastructure, Infrastructure Advantage-Series I, Leadership Equity, Masterplus Unit Scheme and Pharma, of which most of the funds have managed to beat the category returns. As per Dongre, “Factors like under-performance of the stock vis-à-vis market and ability of the company to overcome the challenging market environment played a large role in stock selection rather than market capitalisation.”

In last two year and one year period, the fund has managed to give returns of minus 11.01 per cent and minus 43.12 per cent respectively. For the same period, the category returns stood at minus 16.76 per cent and minus 55.38 per cent respectively. Considering the one-year performance, the fund has not only managed to beat other similar funds like Kotak Contra, SBI Contra, Tata Contra etc under the Contra umbrella but has also managed to beat the Sensex returns. The fund is recently sitting on cash in the range of 10-15 per cent that might be deployed in the January-March period in 2009. The fund’s performance backed by the manager’s proficiency makes this fund a good avenue for investors with slightly higher appetite for risk.