Business cycle refers to the cyclical movement between periods of prosperity and despair in the economic activity of a country. These cycles come in phases that can last from a few months to as long as a couple of years.
Expansion: A sector or an economy is going through a cycle of high growth.
Peak: The expansion phase reaches its highest level, and the growth stabilizes.
Contraction: The growth in the sector or the economy starts to decline.
Slump: The growth hits its lowest point and then stabilizes at that level.
Each of these phase favours growth in different sectors and opens different cyclical opportunities which calls for a unique investing style – ‘Business cycle-based investing’. It has been observed that over a period, stock returns are largely driven by cyclical factors tied to macro-economic factors and hence corporate earnings.
The business cycle funds are a good option for investors to invest and benefit from the shifts in business cycles. Such funds follow a concentrated portfolio approach, which means that any positive news from emerging sectors will help boost returns significantly. On the other side, any negative news from these sectors will hurt the returns if not anticipated in advance.
Aditya Birla SL Mutual Fund has launched Aditya Birla SL Business Cycle Fund. It is an open ended equity scheme following business cycles based investing theme.
On the launch of this fund, Mr A. Balasubramanian, MD & CEO of Aditya Birla Sun Life AMC said, “The economy, periodically, undergoes expansionary and contractionary phases. Research suggests that sectors do not provide systematic performance through business cycle phases. Defensive sectors, like FMCG, healthcare and IT provide better returns through the contraction phase while non-defensive sectors like metals, financials and cement provide better returns during the expansion phase. With no sectoral and market-cap bias, Aditya Birla Sun Life Business Cycle Fund will actively identify investment opportunities and manage allocation through various business cycles to generate returns.”
Table 1: Details of Aditya Birla SL Business Cycle Fund
|Type||An open-ended equity scheme following business cycles based investing theme.||Category||Thematic Fund|
|Investment Objective||The investment objective of the scheme is to provide long-term capital appreciation by investing predominantly in equity and equity related securities with a focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy. The Scheme does not guarantee/indicate any returns. There can be no assurance that the objective of the Scheme will be achieved.|
|Min. Investment||Rs 500 and in multiples of Re 1 thereafter. Additional purchase Rs 500 and in multiples of Re 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
|Fund Manager||Mr Vineet Maloo
Mr Nitesh Jain
Mr Vinod Bhat
|Benchmark Index||S&P BSE 500 TRI|
|Issue Opens||November 15, 2021||Issue Closes||November 29, 2021|
(Source: Scheme Information Document)
The investment strategy for Aditya Birla SL Business Cycle Fund will be as follows:
Aditya Birla SL Business Cycle Fund will predominantly invest in Indian equity and equity related securities with focus on riding business cycles through dynamic allocation between sectors and stocks at different stages of business cycles in the economy.
The fund house will hold Growth at Reasonable Price (GARP) philosophy, to achieve the long-term capital appreciation. The scheme will follow top down approach of portfolio construction to identify stage of business cycle, sector opportunities and subsequently using bottom up approach to identify strong companies within those sectors.
The scheme would aim to deploy the business cycle approach in investing by identifying economic trends and investing in the sectors and stocks that are likely to outperform at any given stage of business cycle. The fund manager will consider economic parameters (like Current Account Deficit, fiscal deficit, interest rates, inflation) investment indicators (like investment in capex, new projects cleared, etc.); business and consumer sentiment (purchasing manager index, business confidence index, sales of various consumer discretionary products, etc.) to decide on the expansion or the contraction phase.
The stock selection of the scheme would emphasize on identifying companies with sound corporate managements and prospects of good future growth. The fund managers will favour companies that offer the best value relative to their respective long-term growth prospects, returns on capital, and management quality.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Aditya Birla SL Business Cycle Fund
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Equity & Equity related instruments selected on the basis of business cycle||80||100||High|
|Other Equity & Equity related instruments||0||20||High|
|Debt and Money Market Instruments||0||20||Low to Medium|
|Units issued by REITs & InvITs||0||10||Medium to High|
(Source: Scheme Information Document)
Who will manage Aditya Birla SL Business Cycle Fund?
Mr Vineet Maloo, Mr Nitesh Jain and Mr Vinod Bhat (for overseas investments) would be the designated Fund managers for this scheme.
Mr Vineet Maloo is Fund Manager (Equity) at ABSL Asset Management Co. Ltd. He is a CA and B.com graduate and has over 17 years of experience in Financial services. Prior to joining ABSLAMC, he has been providing analytical support to the Chief Financial Officer of Hindalco Industries Limited, has worked with Aditya Birla Management Corporation Ltd. & M/s. D. K. Chhajer & Co., Chartered Accountants.
The other schemes managed by Mr Maloo include Aditya Birla Sun Life Balanced Advantage Fund, Aditya Birla Sun Life Dividend Yield Fund, Aditya Birla Sun Life Infrastructure Fund, Aditya Birla Sun Life Dual Advantage – Series 2 and Aditya Birla Sun Life PSU Equity Fund.
Mr Nitesh Jain is Fund Manager at ABSL Asset Management Co. Ltd. He is a CA and CFA Charter holder and has a total experience of 17 years in financial services industry. He joined ABSLAMC in 2018 as Senior Analyst – Midcaps. He has been closely working with Senior Fund Manager(s) for research in Midcap and Small Cap stocks. Prior to this, he worked as Executive Director – Materials Sector in the research division at Axis Capital.
Mr Jain also manages Aditya Birla Sun Life Small Cap Fund
Mr Vinod Bhat is Fund Manager at ABSL Asset Management Co. Ltd. He is CFA (USA), MBA Finance – Wharton University of Pennsylvania (USA), M.S. Industrial Engineering – Pennsylvania State University (USA), B.Tech & Mechanical Engineering – IIT Bombay. He has an overall experience of 21 years in financial markets and investment banking space. Prior to this, he was the Vice President – Corporate Strategy and Business Development with Aditya Birla Management Corporation Pvt. Ltd., and with Ocean Park Advisors (USA) as a Senior Associate- Investment Banking. He was also an Associate – Investment Banking with Credit Suisse (USA).
Mr Bhat manages overseas investments in Aditya Birla Sun Life Global Emerging Opportunities Fund, Aditya Birla Sun Life Global Excellence Equity Fund of Fund, Aditya Birla Sun Life Asset Allocator FoF, Aditya Birla Sun Life Financial Planning FoF, Aditya Birla Sun Life Special Opportunities Fund, Aditya Birla Sun Life Flexi Cap Fund, Aditya Birla Sun Life ESG Fund, Aditya Birla Sun Life Multi-Cap Fund, Aditya Birla Sun Life International Equity Fund and Aditya Birla Sun Life Dividend Yield Fund.
Fund Outlook – Aditya Birla SL Business Cycle Fund
Aditya Birla SL Business Cycle Fund aims to invest in dynamic allocation between various sectors and stocks at different stages of business cycles in the economy.
The scheme will make your portfolio conscious of business cycles, as different cyclical phases tend to favour different sectors. By focusing on identifying these opportunities in advance, this fund has the potential for growth through all business cycles.
The scheme offers investors flexibility and diversification in their portfolio by investing across all market sectors, themes, and market caps. The fund also has the flexibility to invest in select and favourable global opportunities, giving you the potential exposure to global markets as well. The fund managers will endeavour to pre-empt cyclical changes and opportunities in finding industry leaders to maximise potential of growth for investors.
However, being a thematic fund, this scheme will focus on investing in opportunities arising out of various stages of business cycles. This could limit the capability of the fund with a concentrated exposure towards few sectors, thus making it a risky proposition for investors. Also, it depends on the fund manager’s ability to effectively identify the shifts in business cycles and swiftly capture the opportunities across various sectors and stocks at the right time, which remains to be seen.
Aditya Birla SL Business Cycle Fund is suitable only for investors having high-risk appetite and long-term investment horizon of at least 5-7 year to survive the market volatility. Before taking an investment decision, you should ensure that your investment objective is aligned with the fund.
This article first appeared on PersonalFN here