What Is Contrarian Investing?
Buying the Unloved Strategy
Growth of 10K since January 1994, with data through November 30, 2023. After 30 years, the initial version of the unloved approach has easily outpaced the loved approach and the global large-stock blend Morningstar Category average.
Least Popular Fund Categories
With independent investment data, investors can turn up the most promising funds in a rejected category of equity, fixed-income, or allocation funds.
A quick note: for timeliness, this approach was calculated with flows data through November 2023 and does not account for December flows.
Now let's get into the specifics.
Large value
Despite high inflows over the last two years, the large value category saw the greatest absolute dollar outflows in 2023. These portfolios primarily invest in U.S. companies in the top 70% of the capitalization of the equity market. Value is defined based on low valuations and slow growth.
Large growth
The large-growth Morningstar Category has seen some of the highest outflows in 22 of the last 100 years. These portfolios invest in big U.S. companies that are projected to grow faster than other large-cap stocks. Mostly, these funds focus on companies in rapidly expanding industries.
Health sector funds
Health funds have struggled over the last two years. These focus on the medical and healthcare industries, investing in everything from pharmaceutical and medical device makers to HMOs, hospitals, and nursing homes. Some concentrate on one segment, such as service providers or biotechnology firms.
Bank loan funds
These mutual funds or ETFs primarily invest in floating-rate bank loans. The portfolios aim to compensate for higher credit risk with high-interest payments that usually float above a common short-term benchmark.
Bank loan portfolios can come with implementation challenges and limited upside potential due to the lack of call protection. With almost no preconditions, bank loans can be refinanced at or near par to cut interest costs.
Muni national short bonds
These short-term bonds are issued by state and local governments from across the country. Governments use the revenue to fund public projects, and bondholders usually don’t have to pay federal taxes on income. To lower risk, these portfolios spread assets across many states and sectors.
Muni national short bonds have durations of less than 4.5 years or average maturities of less than five years. Because of their shorter duration, they are less vulnerable to changes in interest rates.
Most Popular Fund Categories
Contrarian vs. Value Investing