Can you elaborate how the fund turned around after the debacle in the first year of this fund’s launch?
Invesco India Contra fund benefitted from earnings growth as well as PE re-rating
Can you elaborate how the fund turned around after the debacle in the first year of this fund’s launch?
Invesco India Contra fund was launched in April 2007 when the markets were trading at near peak valuations at the time. Keeping to the fund’s contrarian mandate, the fund took time to gradually invest the initial corpus resulting in some underperformance vis-à-vis the benchmark. Once the corpus was fully deployed, this fund has reasonably outperformed the benchmark on a consistent basis.
What is the fund’s investment philosophy?
This is a multi-cap fund with value bias. The fund generates alpha through stock selection, sector allocation and capitalisation bias. In terms of stock selection, there is a preference for companies trading below fair value and companies in a turnaround phase. In addition to this, the fund also buys growth companies that have been de-rated relative to their peers or sectors due to short term concerns. The fund focuses on overlooked companies or sectors that are thus available at attractive valuations.
What will you attribute to the fund’s consistent outperformance vs. the benchmark?
The outperformance to the benchmark can be attributed to both stock selection as well as sector allocation. The fund benefitted from investing in companies that gained from earnings growth as well as PE (price to earning) re-rating. Our early overweight positions in sectors such as consumer discretionary and industrials clearly helped. Also, what further aided the fund’s outperformance was the conscious decision to avoid companies with balance sheet risks.
What kind of contra calls does the fund take?
This fund is early to build positions in specific companies or sectors based on their attractive valuations. In the current context, the fund has been early to position itself as a beneficiary of India’s macro-economic recovery and has overweight position in consumer discretionary sector. The fund is also overweight in IT and utilities sector given their attractive valuations.
What kind of investments are avoided by this fund?
While contra fund has a value bias, we avoid businesses that are trading at cheap valuations because of reasons such as structural headwinds specific to these businesses. Further, we also avoid companies with high leverage (balance sheet risks).
Amit Ganatra, Fund Manager, Invesco India Contra Fund