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What is contrarian investing, and what are some of the tools contrarians use to analyse the markets? We examine contrarian investing in more detail.
What is Contrarian Investing? Contrarian investing involves making investments decisions that run contrary to the consensus. A contrarian believes that certain crowd behavior (e.g., panic selling) among investors can lead to mispricing in markets, which creates opportunities for profit. By acting contrary to the consensus, contrarians stand to profit when the sentiment turns. Famous investor, Warren Buffett, sums up the essence of contrarian investing: be fearful when others are greedy and be greedy when others are fearful.
Volatility, a commonly used contrarian indicator Contrarian investors commonly use volatility indicators to assist in their investment making decision. Volatility indicators are also known as fear indicators; it is well documented that in period of panic selling, volatility usually shoots through the roof. Contrarian investors use these indicators to predict the level of panic in the markets and act accordingly to capitalise on the opportunities to make profits. In India, the volatility indicator catered for Indian markets is called India VIX and it is based on the Nifty 50 Index option prices. Performance of FSM recommended contrarian funds against the BSE Sensex 100 In India, some fund managers follow the contrarian style of investing. Investors who are comfortable with contrarian investing could consider buying some of such funds. At Fundsupermart.com India, we recommend the SBI Contra fund and UTI Contra fund. Let’s take a look at how they perform against the benchmark BSE Sensex 100.
*UTI Contra Fund was launched on 26th February 2006(source: iFAST Compilations) The SBI Contra Fund has outperformed strongly against the benchmark consistently for the past 5 years. The UTI Contra Fund, a recently launched fund, has shown outstanding performance in the recent year. Apart from performance, investors should also look for funds with low expense ratios to preserve most of the fund’s gains. Let’s take a look at the two funds’ expense ratio:
Both funds do not differ much in expense ratio and the SBI Contra Fund is slightly lower than the UTI Contra Fund. Conclusion Contrarian investing is a long-term strategy and is potentially very profitable. If you would like to have some exposure to contrarian investing, you can choose to add the recommended contra funds to your portfolio. |
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The Research Team is part of iFAST Financial India Pvt Ltd | ||||||||||||||||||||||||||
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iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website. | ||||||||||||||||||||||||||
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