Revealed: The secrets of a contrarian investor

Most investors would agree that buying after prices have already risen sharply and selling after they have fallen is unlikely to be a recipe for long-term success. But this is often what investors end up doing, either consciously or otherwise.

Markets also have a habit of making popular investments more popular, and unloved investments less loved. This is why the stock market, to paraphrase Warren Buffett, can often feel more like a voting machine than a weighing machine.

This raises an interesting question: how much of successful investing comes from identifying the companies you should own, and how much comes from deciding which companies you should own less of?

The hidden side of active investing

When investors discuss performance, the conversation almost always centres on winners. Which stocks generated the strongest returns? Which holdings contributed the most to portfolio performance? And can these companies continue to outperform?

Far less attention is given to underweights, yet they can be just as important. Most active managers aim to outperform a benchmark and measure their performance against it. This makes performance relative – relative to the benchmark.

In this way, a portfolio can benefit from overweighting companies that outperform, but it can also benefit from underweighting companies that underperform. Every investment decision, after all, contains an implicit underweight decision. Choosing to allocate capital to one company means allocating less capital to another.

For active investors, while finding future winners is important, avoiding excessive exposure to future disappointments can be equally valuable.

The challenge of finding tomorrow's winners

Conventional wisdom assumes that successful investing is largely a stock-picking exercise. Find the best companies, hold them for the long term and allow compounding to do the rest. The difficulty is that identifying tomorrow's exceptional performers in advance is extraordinarily difficult.

VanEck's past research (2016 and 2018) into equal-weight investing has identified several reasons why the approach has historically outperformed traditional market capitalisation-weighted indices.

The first is diversification. Market capitalisation-weighted indices allocate more capital to companies simply because they have become larger, which can lead to significant concentration in a relatively small number of stocks and sectors.

The second is exposure. This broader exposure may be particularly valuable given that long-term equity returns tend to be driven by a relatively small number of exceptional performers, which are notoriously difficult to identify in advance.

The third is rebalancing. As share prices move, positions are systematically trimmed or added to, creating a disciplined process that naturally leans against prevailing market sentiment and helps prevent portfolios from becoming overly concentrated in recent winners.

Rebalancing against the crowd

The difficulty, of course, is that markets do not stand still. Companies that perform well become a larger part of a portfolio, while those that disappoint gradually occupy less space. Over time, investors can find themselves increasingly exposed to yesterday’s winners simply because those companies have risen in value.

Equal weighting seeks to counteract this tendency. The VanEck Australian Equal Weight ETF (MVW) is the only Australian equity equal-weight ETF on ASX, and the way it works, rather than allowing market movements to dictate portfolio weights indefinitely, at each index rebalance, MVW trims positions that have become larger and adds to those that have become smaller. In effect, this introduces a disciplined buy-low, sell-high mechanism into the portfolio: selling a little of what has become expensive and buying a little more of what has become cheaper. This is not a judgement on any company's prospects, but rather a way of managing concentration risk and maintaining exposure to a broader opportunity set.

Contrarian investing in practice

Following MVW's March 2026 quarterly rebalance, several of the portfolio's largest positive contributors came from positions that were underweight relative to the benchmark. Lower exposure to the Big Four banks and CSL added value as these stocks underperformed over the subsequent couple of months.

Notably, these underweight positions contributed more to performance than many of the portfolio's strongest overweight positions over the three months to 31 May 2026. This highlights an often-overlooked aspect of active management: avoiding or underweighting stocks that subsequently underperform can be just as valuable as identifying future winners.

Table 1: Largest positive contributors from underweight positions – 3 months to 31 May 2026

The rebalance also established several overweight positions that contributed positively to returns over the past few months. Holdings such as Telix Pharmaceuticals and Ampol all outperformed during the quarter, demonstrating how MVW's equal-weight approach can benefit from increased exposure to companies that go on to outperform the broader market.

Table 2: Largest positive contributors from overweight positions – 3 months to 31 May 2026

Every rebalance creates two sets of decisions: the companies a portfolio owns more of and the companies it owns less of. Investors naturally focus on the former. The latter can be just as important. Successful investing, after all, is shaped as much by the positions that investors choose to limit as the positions they choose to embrace.

Key risks

An investment in our Australian equal weight ETF carries risks associated with: financial markets generally, individual company management, industry sectors, fund operations and tracking an index. See the VanEck Australian Equal Weight ETF PDS and TMD for more details.

MVW is likely to be appropriate for a consumer who is seeking capital growth and a regular income distribution, is intending to use the product as a core, minor or satellite allocation within a portfolio, has an investment timeframe of at least 5 years, and has a high risk/return profile.