One useful barometer of contrarian investing is the Dow Jones U.S. Contrarian Opportunities Index. This index is made up of out-of-favor companies with attractive valuation characteristics and growth potential. Since its inception in 2008, the Dow Jones U.S. Contrarian Opportunities Index has generated higher absolute and risk-adjusted returns than three broad benchmark indexes — on an annualized basis and since its inception.
Contrarian investors often make use of the forward price/earnings to growth (PEG) ratio, which values companies based not only on current earnings, but also on earnings growth projections. By examining the valuations of “down-and-out” companies, investors may see opportunity to unlock value and generate capital appreciation within their portfolios. The table below shows how undervalued the companies that make up the Dow Jones U.S. Contrarian Opportunities Index are relative to other well-known indices.
An ETF with a contrarian investment approach
Investors who are interested in exploring a contrarian approach can talk to their advisors about the PowerShares Contrarian Opportunities Portfolio (CNTR), a smart beta exchange-traded fund that provides exposure to the Dow Jones U.S. Contrarian Opportunities Index. By replicating this index, CNTR offers investors exposure to an objective, rules-based approach to contrarian investing. The fund and index are reconstituted semi-annually with companies that lag the broader market, but outrank peers based upon fundamentals-based and other qualitative criteria.
1 As measured by the S&P 500 Index from 3/31/2009 through 5/31/2015. Source: Bloomberg L.P., June 18, 2015. Past performance is not a guarantee of future results.