After Edelweiss, Motilal launches Business Cycle fund: Should you invest?

his fund aims to capitalize on the ups and downs of the economic cycle by investing in companies that are poised to benefit from different stages of the business cycle.

Motilal Oswal Asset Management Company (MOAMC) has launched another thematic fund called the “Motilal Oswal Business Cycle Fund”. The NFO is an open-ended equity scheme that followS business cycles-based investing theme. The business cycle illustrates the natural ebb and flow of the economy, characterized by alternating periods of growth and decline, as reflected in metrics like real GDP growth and various economic indicators. Each phase of the cycle impacts companies and sectors differently, with distinct opportunities and risks emerging at various stages.

Last month, Edelweiss Mutual Fund  collected more than Rs 1,800 crore through the NFO of its Business Cycle Fund. Edelweiss Business Cycle Fund received more than 90,000+ applications.

 

Key Fund Details:

NFO Period: 7th August 2024 to 21st August 2024

Investment Strategy: This investment strategy focuses on generating wealth by investing in companies through dynamic allocation between various sectors and stocks at various stages of business cycle.

Benchmark: Nifty 500 TRI

Portfolio Strategy: The fund will invest minimum of 80% and maximum of 100% in Equity and Equity related instruments selected on the basis of business cycle theme, Maximum of 20% in Equity & Equity related instruments other than above and Debt and Money Market instruments (including cash and cash equivalents) respectively. Maximum of 10% in Units issued by REITs and InvITs. Maximum of 5% in Units of Mutual Funds with provision for risk mitigation.

Investor Profile: This product is suitable for investors who are seeking capital appreciation over long term by investing predominantly in equities and equity related instruments selected on the basis of business cycle.

 “Indian economy is in an expansion phase which reflects in the improving corporate profitability, credit and CAPEX pick up, and government support to various sectors. This also resulted in improvement in India’s domestic demand and consumption during the past 3 years, which has led to improving business prospects, driving investments in business capacity, and improvement in household assets. With the business cycle strategy, we want to capitalize on this virtuous time for Indian corporates, by selecting businesses that are most likely to do well during this expansion phase," said  Prateek Agrawal, MD and CEO of Motilal Oswal Asset Management Company. 

“Our Business Cycle Fund is strategically designed to capitalize on emerging sectors and themes, allowing early exposure and maximizing the potential for wealth creation from upcoming trends. Utilizing HI-Growth & Hi-Conviction investing, the fund leverages a concentrated allocation of top house ideas across the market spectrum. Its agile approach ensures dynamic investment allocation across all market caps, adapting to evolving opportunities and optimizing returns”," said   Niket Shah, CIO, Motilal Oswal Mutual Fund.

 The Fund Management Team:

Niket Shah, CIO and Fund Manager, MOMF

Ajay Khandelwal, Co-Fund Manager, MOMF

The Additional Fund Management Team:

Santosh Singh, Fund Manager, MOMF

Atul Mehra, Fund Manager, MOMF

Rakesh Shetty, Fund Manager, MOMF – (Debt Component)

Sunil Sawant, Fund Manager, MOMF – (Overseas Component)

Data Source: MOIE, RBI, Ministry of Commerce, ICRA, MOAMC Internal Research

“In business cycle investing, strategic positioning during different phases can significantly impact returns. During expansionary phases, such as 2004-07 and 2021-24, sectors like Capital Goods and Realty have outperformed defensive sectors due to increased capex and infrastructure development. Conversely, during slowdowns like 2009-12, FMCG sectors demonstrated resilience as essential consumption remained steady, outshining sectors like Realty. Similarly, in the trough phase of 2013-20, Consumer Durables surpassed Metals as consumption began to rebound. Understanding these dynamics, wherein market returns are driven by earnings growth and shifts in sentiment, can guide investors in making informed decisions aligned with the business cycle”, added  Niket Shah.

Should you invest in Business Cycle funds?

Business cycles have four phases: expansion, peak, contraction, and trough. Within a sector, companies can be in different phases of the business cycle. Those in the expansion phase or those emerging from a slump and having reasonable valuations can be good investments.These are thematic schemes focused on certain sectors.I

In layperson's terms, if a fund expects the economy to expand, it may look at sectors that have historically boomed during such phases. On the contrary, if the fund expects the economy to fall, it may shift its money to relatively more resilient sectors.

If the investment thesis goes wrong or the business cycle takes longer than expected to play out, they could underperform.These funds are meant for seasoned investors willing to take extra risk and having a horizon of at least five years. 

"Since these funds are fairly untested and have a limited performance history, we suggest you go for a diversified equity fund. (A flexi-cap fund is one such example of a diversified equity fund). They have proven their mettle and are more cost-effective," said Karan Jaiswal of Value Research.

Value Research believes well-diversified funds like flexi-cap funds are a better option for investors, as sectoral and thematic funds have historically blown hot and cold because they rely on the performance of one sector or theme.

Multi-cap and large-cap funds are two other examples of diversified mutual funds. You can choose to invest in them based on your risk profile.