Investors will know that the key to a healthy portfolio is diversification. A broad portfolio that combines different assets, geographies and investment styles provides the foundation for steady returns while helping weather different market environments. One way to diversify your portfolio is to allocate to contrarian investment funds, where fund managers go against mainstream market sentiment – in its simplest terms selling what others are buying and buying what others are selling.
The theory behind contrarian investing is that looking at parts of the market that are ignored and investing in stocks that are currently out of favour allows the investor to buy in at depressed prices. Thomas Rosser, investment analyst at The Share Centre, says stocks ripe for a contrarian investor’s attention often have fallen out of favour because an abundance of pessimism pushed the price of the stock below what it should be.
“The contrarian investor will seek to capitalise on this low price and buy before the broader sentiment rebounds and the share price increases,” he adds.