Contra Fund stands for contrarian and is supposed to be the opposite of value investing.
Contrarian approach is supposed to be very complex. It involves many complex ways of identifying the stocks and investment approach. In this approach, the fund managers look out for stocks which are at cheap prices today but they have potential growth and value in the long run. These stocks are not picked up by many people due to various reasons and the fund manager identifies such stocks and invests the money that is generated from the funds.
The fund manager and analysts of a contra fund claim that they can identify such stocks – which are available at dirt cheap prices today as they are neglected by the market in the short perspective. They claim that by identifying such stocks and investing in them today, they are able to capitalize upon the market valuation and benefit from the long term investment horizon when these stocks become valuable, as the market gradually identifies their potential.
These funds believe that the best time to build up a portfolio is when there is an unwarranted risk aversion in the market coupled with high pessimism, and they aim to exit from the market when markets or stocks are heated up. In essence, these funds take “opposing” or “contrarian” positions with respect to the market estimates and valuation and aim to benefit from them.