When it comes to investment decisions the professional fund manager will tend to follow the crowd for good reason. With a career, bonus and the opinions of investment consultants to think about, adding contrarian plays to a portfolio is an option unlikely to be on many traditional fund managers' agenda. As their own master individual investors can take advantage by taking a little extra risk in adding sensible contrarian plays in the quest to achieve market-thumping returns.
For traditional fund managers investing against market sentiment or the conventional wisdom and failing can be a career terminating move and not a risk highly paid individuals in comfortable jobs are often willing to take. Believe it or not the odd fund manager responsible for managing institutional and retail money during the worst of the GFC was betting against falling markets! When they go wrong, these kinds of contrarian trades can ruin reputations and are the reason many will simply avoid the risk until sentiment clearly turns.
Two businesses currently suffering poor sentiment, but with turnaround potential are QBE Insurance Group Ltd (ASX: QBE) and Fortescue Metals Group Limited (ASX: FMG). QBE's poor recent history of writedowns and mishaps has shaken the market's faith in the business, while Fortescue's giant debt pile means it is not a suitable qualitative investment for more traditional fund managers focused on their reputation as well as their returns.
Consequently both businesses may be bargains for retail investors prepared to overlook the risks on the basis of the reward profile. Indeed if the fundamentals do turn for these two businesses the sentiment will quickly follow and today's investors will likely be sitting on handsome gains over the medium term.
However, if you're looking to make strong, risk-adjusted returns you should consider growing companies, with strong track records on great valuations, just like the one below…
