You might have heard an investor describe themselves as a contrarian, or perhaps an ASX share they’re looking to buy as a ‘contrarian play’. It’s more common than you’d think. What is meant by this rather strange phrase is that the investor either views themselves or the investment idea they have come up with as running ‘against the heard’ or against the popular opinion of the time.
As an example, buying Afterpay Ltd (ASX: APT) shares today is certainly not a contrarian play. That’s because we can confidently say, given the Afterpay share price has appreciated 160% year to date, ‘the heard’ had regarded this share as a buy in 2020. But if you were bullish on Afterpay back when it was $12 per share or less in 2018, this would have been a ‘contrarian’ position to make, as most other investors were giving Afterpay a wide berth at the time.
So does being a contrarian pay off? Well, sometimes. Going against the opinions of most other investors can be highly lucrative. But then again, if most investors aren’t bullish on a particular share, it’s probably for a reason. If the Afterpay growth story didn’t work out, that contrarian position wouldn’t have looked so prescient, for example.
So, after that long-winded introduction to contrarian shares, what’s my favourite contrarian play today? It’s MFF Capital Investments Ltd (ASX: MFF).
MFF – a contrarian bet today
MFF is a listed investment company (LIC) that normally invests in United States-listed growth shares. I say normally because, at the present time, MFF’s largest position is actually cash. According to its most recent market update, MFF told investors that its two largest stock positions were in the US payments giants Visa Inc (NYSE: V) and Mastercard Inc (NYSE: MA). But those positions were only worth 18.1% and 17.3% of the entire portfolio respectively. That pales in comparison with MFF’s cash position, currently sitting at close to 50% of the portfolio.
That in turn, means that MFF is taking a highly ‘contrarian’ position in today’s market by sitting out of the recent gains the market has been making. By extension, this also means that anyone holding MFF shares (like yours truly) is also holding a contrarian position. I’m very comfortable with this right now, as I view holding MFF shares as partly a cash position in itself. I know that MFF’s portfolio managers won’t hesitate to deploy this cash if there’s a market crash in the near future, which in turn gives me confidence in this position. It also balances nicely with my other share positions, which will (hopefully) thrive if the market doesn’t crash.
I wouldn’t call myself a fully contrarian investor, but I certainly like hedging my bets against ‘the crowd’ from time to time, and my position in MFF upholds this today, in my view.