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15 December 2025
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Ask the experts. Paul Angell is on hand to answer your questions about investments. If you'd like a question considered for a future edition, send it in now.
I’m worried about holding too many of the same sorts of companies in my portfolio. I want to find some funds that invest a bit differently, but they are difficult to identify. How do I pick more diverse funds?
Jack
Paul Angell, AJ Bell Head of Investment Research, says:
Selecting funds that purposely stray from the companies you’d be exposed to in an index is popularly known as ‘contrarian investing’.
These kinds of funds typically focus on value, which means they are searching for stocks that, in the fund manager’s opinion, are priced lower than they should be. It is worth noting that contrarian funds are often more volatile than other funds.
When it comes to adding contrarian investments in a portfolio, you’ll likely need to determine what needs to be tweaked from your current allocations. That may mean decreasing exposure to a sector that makes up a large chunk of your portfolio or adding to an area that is currently underrepresented. AJ Bell customers have access to this information in their account, where they can see a breakdown of holdings by sector.
Some markets will be more contrarian by nature, and this can provide a starting point for your search.
For example, the US information technology space leans strongly towards growth characteristics, focusing on what the potential of a company could mean for returns, while contrarians will tend to have a bias towards lower valued sectors such as energy, utilities, financials and healthcare, where companies are typically more mature.
Contrarian funds typically won’t focus on the most glamorous stocks, but because they aren’t making a big splash in the headlines like Nvidia or Tesla, it means that there’s a chance they are overlooked and therefore trading at a discounted valuation.
Choosing the right fund
You can search for funds that focus on an undervalued sector or region specifically, or if there’s a particular fund that’s caught your interest, you can perform checks to see if it will function well as a contrarian holding, whichever sector or region it is invested within.
Once you get down to choosing a particular fund, there are a few ways you can get a fuller picture of what it holds. If a fund is heavily exposed to the same areas as an index, it may not provide the diversification you’re searching for. The number of holdings in a fund can be another clue. Managers that carefully select each stock on its own merits won’t be able to keep tabs on hundreds of companies. So, funds that have between 40 to 100 holdings typically have higher stock specific risk and therefore have a better chance of being more genuinely contrarian.
If you are willing to take a deep dive, reports like Morningstar’s analysis documents, available within the AJ Bell platform, provide further information on a fund’s characteristics with diagrams and metrics showing its positioning with respect to value and growth as investment styles. If you’re searching for contrarian investments, the price to earnings ratio of the fund will typically be less than that of the index. Price to earnings is the ratio of the share price to earnings per share.
What is active share?
Active share is a measure of how different a fund’s holdings are from its benchmark, the index against which it measures its performance. So, if a fund had no holdings at all in common with its benchmark, it would have an active share of 100%, and if all its holdings were the same as the benchmark, its active share would be 0%. High active share is considered 80% or more.
It’s important to be aware of value traps. Just because a stock is cheap, does not mean it is good value and there may be very valid reasons for its low price. Assessing how the fund has performed through time can help investors assess if the managers are truly finding good opportunities, or if they have just loaded up on cheap stocks which are going nowhere. Active share, explained above, can also be useful and is often to be found on fund factsheets.
A few of the strategies on AJ Bell’s Favourite funds list that fall into the contrarian/value category include Man Income, Fidelity Special Situations, Invesco Asian, Lazard Emerging Markets, Schroder Global Equity Income, and Lightman European Fund.
Measuring performance of contrarian investments
In recent years, contrarian investors, especially in global or US markets, have struggled to keep up with their performance of major indices. This is predominantly due to companies like Nvidia, which make up such a large part of the indices, having performed so well. Therefore, if a fund doesn’t hold those big winners, it’s very hard for their relative returns to compete.
Notably, this has not been the case for markets in the UK and Europe. Here, value strategies have outperformed growth in recent years, so a contrarian manager underperforming a main index would represent more of a concern.
Many contrarian funds will still measure their returns against a traditional index, like the MSCI World. But if you’re attempting to see how the strategy has done versus other investments that are focused on value, you may be better off comparing them to another benchmark. One way to do this is to find a passive instrument that tracks an index in that same realm, like the Xtrackers MSCI World Value ETF for a contrarian global fund or the iShares Edge MSCI USA Value Factor ETF for a US-focused fund.
Paul Angell: Head of Investment Research
Paul Angell is AJ Bell's Head of Investment Research. Paul began his investment career with a global investment bank in 2010, holding various roles across London and Hong Kong over the following years. In 2016...
