Value and contra-theme based mutual funds gave an average return of 49.76% in the last one year, data crunching by ETMutualFunds showed. There were around 22 schemes in the category.
ET Guide to ITR
Quant Value Fund, the topper in the category, gave 80.94% in the last one year. JM Value Fund gave 66.25% return in the same time period.
ICICI Prudential Value Discovery Fund, the largest scheme in the category based on assets managed, gave 44.49% return in the last one year. HDFC Capital Builder Value Fund, the oldest scheme in the category, gave 45.52% return in the last one year.
DSP Value Fund gave the lowest return of around 35.48% return in the said period.
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Are you wondering how these schemes managed to offer such good returns in the last one year? “Value investing has emerged as a strong performer in the face of recent market volatility. Fueled by inflation concerns and uncertain interest rates, value funds continued on a positive trend over the past few years. This success can be attributed to two key strengths of value investing. Firstly, value stocks, with their focus on undervalued companies, tend to be less sensitive to market fluctuations compared to growth stocks. This characteristic provides a "margin of safety" for investors, particularly during volatile periods like the one we've recently witnessed due to inflation and interest rate uncertainty,” said Shruti Jain, CSO, Arihant Capital.
“Secondly, value funds benefit from geographical diversification. In 2022, India's strong performance relative to other major markets helped mitigate potential losses elsewhere within these funds,” she adds.
In the last six months, these schemes offered an average return of 29.30%. Quant Value Fund gave the highest return of around 61.32% in the last six months, followed by Nippon India Value Fund which gave 34.25% return.
In the last three years, value/contra funds gave an average return of 24.40%. SBI Contra Fund, the topper in the category, gave 32.57% return in the last three years.
Will these funds continue to offer such superior returns going forward? “Looking ahead, a value-based approach that focuses on individual stocks remains attractive. With potentially-inflated valuations in some areas, careful selection will be key. Value investing can be particularly compelling in early stages of economic recovery, as undervalued stocks can experience a "twin benefit" of price appreciation alongside potential earnings growth,” comments Shruti.
These schemes are benchmarked against Nifty 500 - TRI and S&P BSE 500 - TRI which gave 40.87% and 40.20% returns respectively in the last one year.
ETMutualFunds compared the performance of these schemes with the performance of their respective benchmarks. Out of 22 schemes, 19 schemes managed to outperform their respective benchmarks. Only three schemes failed to beat their respective benchmarks
Thinking of investing in value/contra funds? Is this the right time to invest? What precautions should one take? “Value funds are ideal for long-term investors (5+ years) who can handle market ups and downs. These funds focus on undervalued stocks, which can trade at a discount for extended periods. But the wait can be worth it – value stocks tend to be less volatile, offering a potential buffer during turbulent markets. If you’re thinking about value funds, diversification is key. Spread your investments across different asset classes to manage risk. And remember, choose a fund with a proven track record that aligns with your investment goals,” recommends Jain.
In FY24, value/contra funds received total inflows of Rs 14,824.53 crore with the highest being in June of Rs 2.239 crore. The total assets under management of value/contra funds stands at Rs 1.49 lakh crore as on March 31, 2024.
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What is the way forward for value/contra schemes or value investing? “The recent dominance of value investing in the Indian stock market, with value funds generating strong returns, has attracted significant interest. However, it's crucial to recognize value investing as a long-term strategy with inherent characteristics. Investors should anticipate periods of underperformance within value portfolios,” said Shruti.
“While undervalued stocks are core to this strategy, their eventual price appreciation hinges on market recognition of their true worth. This process can be time-consuming, and investors seeking immediate results may be better suited to different investment vehicles. Furthermore, while value funds offer compelling opportunities, prudent portfolio allocation dictates limiting them to a specific portion, typically around 20%. Diversification across various asset classes remains essential for effective risk management,” she adds.
Value or contra funds invest in undervalued stocks or stocks that are not favoured by the market. They then wait for the market to realise the full potential of these stocks. This makes the strategy risky. Sometimes the market may take a long time to reward such stocks. They tend to suffer in a bull market when everyone is chasing stocks unmindful of the valuations. That is why these funds are only recommended to mature or evolved investors who subscribe to value investing principles and have a long investment horizon. Mutual fund managers ask investors to invest only 20% of the total portfolio in value funds.
If you are looking for recommendations, see:
Best value funds to invest in April 2024
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
