Edelweiss Mutual Fund has launched a new equity scheme, Edelweiss Business Cycle Fund. Open for subscription from July 9 to July 23, 2024, the open-ended fund aims to capitalise on market opportunities through a unique business cycle-based investment strategy.
What is a Business Cycle Fund?
Unlike traditional mutual funds that focus on a particular sector or market capitalization, business cycle funds aim to adjust their holdings based on the different phases of the economic cycle. Economies go through periods of expansion (growth) and contraction. Business cycle funds identify these phases and invest in sectors that tend to perform well during each phase.
Edelweiss Business Cycle Fund's Approach:
Factor investing approach: The fund leverages factor investing to create three distinct baskets of high quality, growth and value stocks. This diversification helps to reduce the overall cyclicality of any single factor.
Momentum focus: Within each basket, the fund prioritizes momentum stocks to form a diversified portfolio of 50-60 companies.
Dynamic Sector Rotation: The fund strategically rotates investments across sectors at different points in the business cycle and combines momentum and fundamental analysis to optimize entry and exit points. This approach aims to generate better alpha (returns in excess of the market benchmark).
Within each basket, the fund will select stocks with the most momentum to form a diversified portfolio of 50-60 stocks. The fund will dynamically rotate across sectors over various time horizons, aiming to seamlessly combine momentum and fundamentals to enter and exit sectors and generate better alpha.
How is it different?
Traditional mutual funds may have a static investment strategy that focuses on a particular sector or company size. Business cycle funds, on the other hand, actively adjust their holdings based on economic conditions. This approach gives investors exposure to sectors that are likely to perform well in the current economic climate, potentially leading to higher returns.
Ventura Securities explains the different types of business cycles.
A business cycle is the fluctuation in economic activity that an economy goes through over a period of time. It usually consists of four phases:
1. Expansion: Characterized by increased economic activity and growth.
2. Peak: The height of economic growth before a recession.
3. Contraction: A period of decline in economic activity.
4. Trough: The lowest point before the economy begins to recover.
According to Ventura Securities, the Edelweiss Business Cycle Fund will adopt a dynamic asset allocation approach.
– Sector rotation: Adjust sector exposure based on the current economic cycle, for example increasing exposure to consumer staples and technology during economic expansions and shifting to defensive sectors such as healthcare and utilities during downturns.
– Stock Selection: Identifying companies with strong fundamentals that are expected to perform well at the current stage of the business cycle.
“Edelweiss Business Cycle Fund offers investors a convenient and unique solution by undertaking dynamic sector rotation. The strategy effectively addresses the common challenge of timing sector entry and exit, which investors often struggle with. Momentum has been India's best performing driver for many years and when combined with other fundamental factors, has proven highly effective in generating long-term alpha. Investing across sectors and market caps, the fund offers a robust solution for core allocation with a long-term perspective,” said Radhika Gupta, MD & CEO, Edelweiss Mutual Fund.
The fund will be managed by Bharat Lahoti, co-head, factor investing, and Bhavesh Jain, co-head, factor investing.
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Investment Strategy: The scheme employs a bottom-up approach to stock selection within each market capitalisation and seeks to maintain sector diversification of the portfolio.
Edelweiss Business Cycle Fund: Asset Allocation
– Stocks and stock-related products: 80-100%
– Debt and money market instruments: 0-20%
Asset Allocation: The fund managers consider macro-economic parameters, consumer sentiment and overlay this with their in-house proprietary models using fundamental and technical analysis of stocks to create a portfolio that encompasses sectors, stocks and styles suited to the business environment.
Who should invest?
- Investors with very high risk tolerance should invest in Edelweiss Business Cycle Fund for a period of more than five years.
- Risk involved: Very high level of risk.
- Benchmark: Nifty 500 TRI
The NFO will be open for application from July 9 to July 23. The scheme will reopen for continued sales and buybacks within five working days from the allotment date.
The Fund offers structured investment solutions such as SIP and SWP to create a flexible investment plan.
The minimum subscription amount is Rs 5000 and any subsequent amount can be in any multiple.
First Edition: July 9, 2024 | 1:40 pm IST
