Don’t get misled by the name. When
SBI Contra was true to its calling, its stock picks and sector moves made it an awfully bold choice. Its fabulous run led to other fund houses launching their versions of contra funds.
Sandip Sabharwal was responsible for putting this fund on the map. He looked for stocks not fancied by the market and where the under ownership was carried to such a level that even a teeny weeny bit of positive news could create a significant price movement. He also scouted for stocks with deep value that might not do well in the short run but would create huge alpha over time.
Even though Sabharwal quit end 2005, the fund continued on a fairly good note under Pankaj Gupta. However, it began to shed its contrarian image and run a fine balance between riding on consensus sectors and taking contrarian bets. The end product being a blended portfolio of growth and value stocks.
Senior fund analyst Kavitha Krishnan notes this point in her analysis. She believes that SBI Contra doesn’t stand out as a true-blue contra strategy. Rather, manager Srinivasan adopts a flexible investment approach to invest in high conviction ideas. Having said that, the contrarian tilt is the most distinguishing factor though it forms part of the overall investment strategy rather than a core mandate.
For instance, the manager will scout for fundamentally strong companies trading at a discount to their intrinsic value. When he is unable to uncover such stocks, he will narrow down on picks in favour but with attractive growth prospects. Given that a combination of factors may be adopted for the "non-contrarian" portion of the portfolio, it is possible that the strategy could be evolving in terms of its characteristics.
Performance
A decade ago, the fund was knocking out the lights. If one looks at the annual performance over the past few years, the term mediocre comes to mind. In the past 6 years, it has underperformed the category average in five and delivered a 2.45% outperformance in 2012.
Under Srinivasan’s leadership (June 2011 - July 2016), the fund underperformed the category average falling in the third quartile amongst its peers. However, it outperformed the S&P BSE 100 index by a narrow margin of about 15 basis points, beating 31% of its peers in the Flexicap category. To its credit, the fund runs a lower risk as compared to its peers as measured by its standard deviation on a 3-year basis.
Further, the concentration levels on this fund have remained fairly constant over the past three years. While the lower downside capture ratio on this fund versus its category peers is a positive, the fund’s upside capture ratio is slightly lower, too.
Why the fund gets a 'Neutral'
The investment strategy is a conventional growth-oriented one with an element of contrarian investing.
While earlier the fund displayed a strong multi-cap orientation, under Srinivasan’s leadership, the portfolio maintains a bias towards large cap-stocks, with the exposure towards this segment having increased substantially.
While we are not saying that the fund has run out of gas, we are inclined to believe that the overall strategy is still coming together and, along with the investment process, will evolve over time. Until we have seen more of the strategy, our confidence in the fund’s prospects remains muted.
We reiterate the fund's Morningstar Analyst Rating of Neutral.
Snapshot
- Category: Flexicap
- Analyst Rating: Neutral
- Star Rating: 3 stars
- Fund Manager: R. Srinivasan since June 2011
- Expense Ratio: 2.49% (distributor plan), slightly higher than average
- Investment Strategy: Large-cap strategy, slight contrarian bias
- Investment Process: Growth stocks with a high intrinsic value
- Performance: While we hold a positive opinion on the manager, the fund needs to deliver some better numbers
This post has been edited by Larissa Fernand, editor at Morningstar India. The analysis of the fund has been done by Kavitha Krishnan, senior fund analyst.
