Are you looking for a top performing equity fund that has posted optimum risk-adjusted returns and outperformed not only its benchmark but also its category? We recommend SBI Mutual Fund's Magnum Contra (NAV Rs 28.35).
Investment philosophy
Magnum Contra is a pure diversified equity fund. It follows a contrarian stock picking strategy, where the fund manager invests in strong stocks that are under-owned and waits till others notice it. In Magnum Contra's case, it picks up those stocks whose expectations vary from the rest of the market. For instance, in October 2005 the fund invested in Infosys. In its current portfolio, the fund holds several stocks in the banking sector like SBI, Union Bank and Oriental Bank of Commerce when the market is bearish on these because of the rising interest rate scenario.
Fund management
The fund management has demonstrated the ability to pick stocks ahead of others and exit some at the right time. The fund invested in stocks like BHEL and Praj Industries in 2002 and 2003 respectively and held on to them. The returns these have given the portfolio are spectacular. The fund has benefited from re-rating of several mid-cap segment stocks over the past three years; Crompton Greaves, IVRCL Infrastructure, and KEC International, among others.
The fund has slowly changed its strategy and is taking a higher exposure to large-cap stocks now, moving to 65 per cent large cap exposure from 50 per cent earlier. The fund seems to have booked partial profits in the mid caps when the sector surged and then made this shift. This has turned out to be a good strategy for the fund as mid caps corrected heavily in the recent down turn. The fund has top exposures to scrips like Hindustan Zinc, M&M, BHEL, ACC, and Cipla. The fund has also taken a few risks like investing substantially in Zee Telefilms in June 2005. This too paid off as Zee soared during that time.
Performance
The scheme has a successful track record. It has managed to beat its benchmark, BSE 100, as well as the category average consistently by big margins. On a three-year CAGR basis, the fund delivered a return of 76.1 per cent compared to the category average of 47.9 per cent and BSE 100's 41.6 per cent. In our latest rankings, the fund ranks second in the diversified equity fund category.
|
Peer Comparison | ||||
|
Scheme |
6 mth |
Returns(%)1 | ||
|
1 year |
2 year |
3 year | ||
|
SBI Magnum Contra |
9.6 |
50.8 |
73.1 |
76.1 |
|
DSP ML Equity |
5.0 |
40.9 |
54.7 |
54.7 |
|
HDFC Equity Fund |
4.7 |
46.4 |
53.0 |
52.5 |
|
HSBC Equity Fund |
2.2 |
36.2 |
41.8 |
55.1 |
|
Kotak 30 |
8.7 |
44.7 |
50.8 |
52.7 |
|
Birla SunLife Equity |
1.2 |
31.8 |
52.3 |
57.8 |
|
BSE 100 |
5.4 |
33.7 |
40.2 |
41.2 |
|
1As on 17 July, absolute for 6 months, CAGR for above 1 yr | ||||
|
FUNDFACTS | |
|
Minimum investment |
Rs 2,000 |
|
NAV as on 17 July |
Rs 38.35a |
|
Entry load |
2.25% |
|
Exit load |
within 6 months 1%, before 1 year 0.55 |
|
launch date |
14 July, 1999 |
|
Fund manager |
Sanjay Sinha |
|
Corpus(June '06) |
Rs 1,120.97 crore |
|
Benchmark |
BSE 100 |
|
Expense ratio |
2.10% |
|
aGrowth option was introduced in May 2005 | |
However, from 17 May to 17 July the fund has marginally underperformed its benchmark yielding an absolute return of -19.7 per cent compared to BSE 100's -17.5 per cent due to underperformance of IT stocks.
Also, stocks like Reliance and ONGC, which the fund is underweight on, dominated the rally. In a way, this underperformance is a reflection of the very contrarian nature of the fund. Based on the type of stocks that the fund manager will invest in, this fund may appear unattractive in the short-term but you could reap great returns over the the long run. The fund also scores on its lower than average expense ratio of 2.1 per cent and low churning of stocks.
The consistent performance of Magnum Contra has inspired a few other fund houses to launch their own versions of contra funds. Add this one to your portfolio for the long term.
