Thematic funds have been in vogue ever since funds regulator SEBI restricted fund launches to one per category per AMC. But, that is not to say that good themes have not sprouted in the melee that ensued. Business cycle based investing is one such theme. Today, we have 3 funds that play on this theme, and a 4th is about to join the rank. Baroda AMC has launched Baroda Business Cycle Fund. The NFO period began on August 24 and will close on September 6. Let us take a close look at the fund and what it offers.
Business cycle
Business cycle approach is an investment based on identifying the economic trend. Each economic trend has its own share of winners and losers in the stock market. Hence, correct identification of a trend and then building a related portfolio can deliver higher alpha.
There are various business indicators that help us understand the economic trend. The business cycles have 4 phases; Recovery, Growth, Expansion and Contraction, each phase offers unique opportunities and rewards.
Key differentiators
Business cycle investing stands on 5 key pillars.
Top-Down approach – There is a focus on macro indicators for sector allocation.
Wind Shield approach – There is a focus on forward indicators rather than historical data.
Flexible approach – Exposure to a set of sectors that are beneficiaries from the economic recovery & is not restrictive in its investment style.
First Mover advantage – Based on the lead indicators, opportunities are identified well ahead of time.
Agility – Investments across sectors are not static in nature & are rotated based on business cycle phase.
Why now
The domestic economy is showing initial signs of recovery after being ravaged by Covid-19. However, the pace of recovery has been relatively slow. Still, there are several investment opportunities which are emerging & the Business Cycle Fund could capitalize on them.
Nifty EPS is expected to grow ~25% CAGR from FY21-23, vs. ~7% CAGR in the last decade. Record low interest rates, driving increased investor participation in equities.
Baroda fund approach
The Baroda Business Cycle Fund will monitor macro indicators & identify business cycle opportunities.
Next, it will identify themes / sectors based on business cycle opportunities.
Then, the fund will identify stocks based on finalized themes / sectors.
A periodic assessment of the macro-economic environment and the subsequent investment approach is conducted, based on which the portfolio may be reallocated.
Baroda Business Cycle Fund has the agility to move across sectors, with no sectoral caps on allocation.
Best for which investors
Thematic funds are not for all. But, adding them to your portfolio can jazz up returns.
Baroda Business Cycle Fund is ideal for investors aiming to benefit from strategic fund positioning based on the business cycle phase. This product would also benefit from economic recovery over the next few years and thus can be a good addition for investors aiming to add style diversification to their portfolio.
Existing funds
Apart from Baroda Business Cycle Fund, there are 3 other funds in this space viz. ICICI Prudential Business Cycle Fund, L&T Business Cycles Fund and Tata Business Cycle Fund.
Baroda Business Cycle Fund facilities
Plans & Options – Regular & Direct
Growth Option , Income Distribution Cum Capital Withdrawal Option (ICDW)
Pay-out of Income Distribution Cum Capital Withdrawal Option
Re-investment of Income Distribution Cum Capital Withdrawal Option (default sub-option in case no sub-option specified by investor)
SIP, SWP, STP is available
Fund managers – Sanjay Chawla (Chief Investment Officer)
Abul Fateh (Sr. Equity Analyst and Fund Manager) & Pratish Krishnan (Sr. Analyst) (Dedicated Fund Manager for overseas investments)
Exit load – For redemption/switch out of over 10% if units allotted within 1 year from the date of allotment, there is 1% load on applicable NAV
