Category 3 AIFs experienced a performance divide in July 2024. Long-short AIFs lagged, posting an average return of 2.44%. Conversely, Long-Only AIFs thrived, achieving an average return of 4.41%, successfully leveraging positive market trends.

Category 3 AIFs displayed a stark performance difference between long-only and long-short strategies in July 2024. Long-Only AIFs thrived with an average return of 4.41%, surpassing the Nifty 50 TRI but slightly trailing the BSE 500 TRI. Notably, approximately half of these funds outperformed the broader market.

In contrast, Long-Short AIFs struggled, achieving an average return of only 2.44%, with less than 19% managing to beat the benchmarks. In absolute terms, 35 among the 68 long-only funds outperformed the Nifty 50 TRI, while 32 outperformed the BSE 500 TRI. As for long-short AIFs, 6 of the 33 managed to outperform either benchmark.

Top 10 Long-Only Performers

Several Category 3 long-only AIFs demonstrated exceptional performance in July 2024. This set helped boost the category average return to 4.41% this month. This success can be attributed to skilful stock picking, effective sector allocation, and the overall buoyancy of the Indian equity markets during the month. 

InCred Asset Management's Emerging Business Fund led the pack this month with an impressive 11.46% return. This fund targets companies embarking on the capex cycle, particularly in sectors like Chemicals, Engineering, Pharma, Textile, and Electronics. Its low benchmark overlap positions it for strong long-term alpha generation.

Following closely was Motilal Oswal AMC's Hedged Equity Multi Factor Strategy (HEMSA), delivering an 8.45% gain. This strategy boasts style diversification, drawdown protection, and eliminates fund manager bias. Its low correlation to the Nifty 50 and adaptive portfolio further contribute to its consistent performance.

Aequitas Investment Consultancy's Equity Scheme I secured the third spot with an 8.31% increase. Their focus on a significant margin of safety and well-diversified portfolios of high-potential stocks underpins their strategy.

At 4th Dickey Asset Management's Dickey Nivesh Fund and at 5th Renaissance Investment Managers' India Next Fund III followed closely with returns of 8.22% and 8.06%, respectively. Renaissance's fund adopts a macro-driven theme with a focused, bottom-up stock selection approach, ensuring alignment with prevailing economic fundamentals.

These top-performing funds demonstrate a range of successful strategies, offering investors attractive options for potential growth. 

The category’s performance compared to benchmark indices is depicted below.

Long-Short Performance

Long-Short funds, known for their intricate investment strategies and focus on risk mitigation, encountered difficulties in July 2024. 

Despite their sophisticated techniques aimed at achieving stable returns, the category as a whole underperformed, echoing the challenges seen in June. The average return of 2.44% paints a picture of this struggle, with only a handful of schemes (6 out of 33) managing to outperform the broader market benchmarks, the Nifty 50 TRI and the BSE 500 TRI. 

This suggests that the current short-term market environment might not be as conducive to long-short strategies as long-only offerings.

Category 3 Long Short Performance - July 2024

Despite the overall challenges faced by long-short funds in July, several shining stars emerged within the category, demonstrating that skilful navigation can still yield impressive results.

Swyom Advisors' India Alpha Fund took the lead with a noteworthy 7.17% return. This fund capitalizes on key corporate events such as mergers, acquisitions, share buybacks, and earnings announcements, generating absolute returns by actively participating in these market-moving opportunities.

Following closely was Edelweiss Asset Management's Alternative Equity Scheme, achieving a 5.28% gain. This fund, recognized as the top performer in June, employs a core-satellite structure and aims to provide absolute returns with limited downside, showcasing its ability to manage market volatility.

InCred Asset Management's Dynamic Equity Asymmetric Returns Fund managed to secure the third position with a 5.16% return.

Nuvama Asset Management's Enhanced Dynamic Growth Equity (EDGE) Fund followed closely at 5.11%. This fund is designed to help investors navigate market fluctuations by offering downside protection and potential alpha generation, serving as an ideal complement to a long-only equity portfolio.

Finally, Altacura AI's Maximus Fund delivered an attractive 4.70% return in July, showcasing its consistent pursuit of alpha over the Nifty 50 Index (as seen in June). This fund's strategy involves strategic volume management and capitalises on both long and short positions to achieve positive alpha in various market conditions.

These top-performing long-short funds serve as a testament to the effectiveness of their distinct strategies. Even in a challenging market environment, these funds have showcased their ability to generate attractive returns while also mitigating downside risks, presenting investors with compelling opportunities for potential gains.

Here is a table with the top 5 long-short funds.

Other AIFs performance

In July 2024, Category II AIFs, particularly those focused on debt, continued their strong showing. Northern Arc Investment Managers once again stood out, with its IFMR Fimpact Long Term Credit Fund leading the pack at 12.41%. Their Income Builder Fund Series II also delivered a solid 10.02% return. 

Vivriti Asset Management's debt funds also performed admirably, with the Alpha Debt Fund achieving 10.28% and its Enhanced version posting a 9.31% gain. The sustained strong performance of these debt-focused funds hints at continued investor confidence in fixed-income strategies. 

However, the relatively lower returns of Northern Arc’s Money Market Alpha Fund (0.81%) and Whitespace Alpha Fund 2 - Debt Plus (1.40%) serve as a reminder that performance within the debt AIF space can vary significantly based on the specific strategy and underlying investments. 

Meanwhile, Chanakya Opportunities Fund, classified under CAT II - SME, secured an impressive 11.25% return, suggesting resilience and growth potential in the small and medium-sized enterprise sector. 

Overall, the July 2024 performance data for these AIFs underscores the diversity and dynamism of the AIF landscape, with opportunitiesx` for attractive returns across different categories and strategies.

Takeaway

In July 2024, long-only AIFs outshined with strong returns, while long-short funds lagged. Category II debt funds also continued their impressive performance, showcasing the varied opportunities across the AIF landscape. This emphasises the need for investors to choose strategies carefully, aligning with market conditions and their risk appetite.

India's sustained focus on infrastructure and manufacturing, coupled with consistent policy implementation, is expected to fuel long-term economic growth, presenting investors with promising prospects.