Motilal Oswal Business Cycle Fund: Motilal Oswal Asset Management Company (MOAMC) today announced the launch of its New Fund Offer (NFO) Motilal Oswal Business Cycle Fund on 7th August 2024. This new thematic fund of Motilal Oswal Asset Management Company is an open-ended equity scheme that follows a business cycle based investment theme. Its investment strategy is to create wealth over the long term by investing in companies in different phases of the business cycle through dynamic allocation across sectors and stocks. While the benchmark is Nifty 500 TRI.
Portfolio Strategy
This fund (New Fund Offer) will invest at least 80% and maximum 100% in equity and equity related options selected based on the business cycle theme. At the same time, 20% allocation will be in equity and equity related options related to the business cycle theme, apart from other equity or equity related options, debt and money market. This also includes cash. At the same time, a maximum of 10% allocation can also be made in units issued by REITs and InvITs. At the same time, a maximum of 5% can be allocated to the units of mutual funds with the provision of risk mitigation.
Investor Profile
This product is a good option for investors who want to grow their wealth over the long term by investing primarily in equity and equity-related options chosen based on the business cycle. For investors who understand the volatility of the stock market and have the ability to bear the associated risk, these funds are a good option for those with an investment target of at least 5 years. Business cycle funds have both lump sum and SIP investment options.
How does a business cycle fund work?
Business Cycle Funds can invest in stocks of companies from all sectors and with all market caps. The stocks of good companies from sectors that are expected to perform well as per the business cycle are included in the portfolio of such funds. Generally, based on a specific selection process, sectors are first selected according to the business cycle and then financially strong companies from those sectors are selected. The portfolio of a Business Cycle Fund can have defensive and non-defensive sectors. Defensive sectors are pharmaceutical, FMCG, IT and telecom and these sectors can perform stably even during economic recession. On the other hand, non-defensive sectors include sectors like financial, infrastructure, automobile, cement, which perform better during the boom in the economy.
Due to this strategy, funds of this category have the ability to perform better in all situations. A business cycle has both boom and recession phases. The performance of some stocks also changes with the change in the business cycle. In such a situation, if the investment portfolio is in line with the business cycle, then better returns can be expected from it.
Selection of better business themes for investment
Prateek Agarwal, MD & CEO, Motilal Oswal Asset Management Company, says that the Indian economy is in an expansion phase, driven by improved corporate profitability, increased credit and capex, and government support to several sectors. As a result, India’s domestic demand and consumption have also improved during the last 3 years, leading to improved business prospects, increased investment in business capacity and improved household assets. With a business cycle strategy, we want to take advantage of these good times by selecting businesses that are most likely to perform well during this expansion phase.
The business cycle reflects the flow of the economy, which is characterized by alternating periods of growth and decline, as reflected in metrics such as real GDP growth and various economic indicators. Each phase of the cycle has different impacts on companies and sectors, with different phases presenting different opportunities and risks.
Returns of different sectors change in different phases
Niket Shah, CIO, Motilal Oswal Mutual Fund, said that our Business Cycle Fund is strategically designed to capitalize on emerging sectors and themes, allowing early exposure and maximizing the wealth creation potential from upcoming trends. Using high-growth and high-conviction investments, the fund leverages a concentrated allocation of top house ideas across the market spectrum.
In business cycle investing, strategic positioning during different phases can have a significant impact on returns. During expansionary phases such as 2004-07 and 2021-24, sectors such as capital goods and realty have outperformed defensive sectors due to growth in capex and infrastructure development. Conversely, during recessions such as 2009-12, the FMCG sector performed better as essential consumption remained stable. The realty sector underperformed during this period. Similarly, during the tough phase of 2013-20, consumer durables outperformed metals as consumption started growing again.
