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Low-risk, high return is contrarian, not contradictory

R. Gopalakrishnan

`Twin offer' from Lotus India MF

CHENNAI: Is this the right time to launch a mutual fund with a contrarian investment strategy (namely, Contra fund), considering that the few such funds launched so far have not performed extraordinarily, perhaps with the exception of SBI Magnum Contra?

"Contra opportunities exist in all markets, bullish or bearish; in all cap sizes; and in all sectors of the economy", and do not necessarily involve a long wait for returns, says Sanjeev Patnaik, Vice-President and Regional Sales Head of Lotus India Mutual Fund, which has come out this month with an open-ended contra fund.

Talking to The Hindu, Mr. Patnaik said the seven top performing stocks of 2006, from six sectors of the economy, were the seven worst performing ones in 2005.

"All stocks have a life cycle, and all stocks can pass from the stage of becoming attractive and consequently becoming a `momentum stock' sought after by the `herd'.

Once such stocks become over-valued, they become unattractive and neglected and thus potential targets for contrarian investment, he explained.

To add to that, "acrophobia" (fear of heights) is setting in with the Sensex touching a record 14000, he added.

Contrarian investment strategies involve identification of under-valued and under-performing stocks which have the potential to become attractive and momentum stocks, and if identified and handled with dexterity, would mean a combination of "low risk and high return" to investors, Mr. Patnaik said.

Recent entrant

Lotus India AMC, a recent entrant in the Indian market, has been sponsored by Alexandra Fund Management, an affiliate of Fullerton Management Group and Sabre Capital Worldwide, both wholly-owned subsidiaries of Temasek Holdings of Singapore.

Lotus has chosen to market its Contra Fund along with a close-ended mid-cap three-year equity fund as a "Twin Offer", thus placing before investors the appeal of both unconventional and conventional, mainstream investment strategies at the same time. The current growth story of Indian industry and services sectors provides a promising background for investment in mid-cap stocks.

The AMC, which got approval from the regulators last July, had towards the end of last year launched its first three schemes, two liquid funds and a tax plan.

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