You may think you're a contrarian — a fearless thinker who goes against the herd on the Street.
But it's much harder being one than you might think. At least, that's the message from the few stock funds that carry the word “contrarian” in their names.
Actually, being a contrarian doesn't mean just doing the opposite of what everyone else does, because that's a sure recipe for getting trampled. Think of anyone who has bought oil stocks in the past six months or, even worse, jumped into
Chinese equities.
Being contrary means buying (or selling) at key inflection points. You want to buy oil when conventional wisdom says oil will soon be cheaper than water. And that's harder than it sounds.
Currently, eight funds have “contrarian” in their names, assuming you include
Fidelity Contrafund (FCNTX) in the mix. As a group, their returns haven't been impressive. The funds have lost an average 10.1% this year, vs. an 8.51% loss for the Standard and Poor's 500 with dividends reinvested. Longer term, the funds have gained an average 4.9% a year, compared with 9.32% a year for the S&P 500.
Nevertheless, there are some standout performers, with Columbia Contrarian Core (SMGIX) being at the top of the heap. The fund has gained 10.01% a year the past five years, according to Morningstar; and its year-to-date performance, a loss of 8.65%, is just a shade below the S&P 500.
Manager Guy Pope and his team start with stocks that are trading in the bottom third of their 52-week range, said Morningstar analyst Gretchen Rupp. From there, it's a matter of picking the stocks that are the most unfairly beaten down. The fund's most recent purchases include health care company Perrigo (PRGO) and Fidelity National Information Services (FIS), which makes banking software.
Next up is Fidelity Contrafund. With $102 billion in assets, it is not exactly the most nimble fund these days. The fund has gained 9.08% a year the past five years. In a fund that size, a big part of the battle is sector weighting: A $1 billion stake in Apple Inc. (AAPL), after all, would mean less than a 1% position in the fund. (For the record, Contrafund had about $3.5 billion of its assets in Apple at the end of 2015, making it the fund's sixth-largest holding).
Contrafund was slightly tilted toward technology at the end of the year, according to Morningstar, and overweight in financial stocks as well, which accounts for its current underperformance. The fund was light on
consumer defensive stocks and health care as well.
Janus Contrarian (JACNX) appears to have taken a wrong turn on the consumer cyclical and health care sectors, loading up on stocks like United Continental, down 15.62% this year, and Endo International, down 18.18%. But other bets, such as Dollar Tree, down 2.58%, and Land's End, down 5.97%, have held up reasonably well in this market.
At the bottom of the contrary heap: Hodges Pure Contrarian (HDPCX), down 7.89% this year, but also down an average 5.01% a year the past five years. The small-cap fund has made big bets on consumer cyclical stocks, many of which have weathered the
bear market well. Its largest stake, a true contrarian position in J.C. Penny Company Inc. (JCP), has gained nearly 5% this year.
