December 2023: AIFs play it safe with modest returns

The stock market continued from where it left in November, with a steadily strong rally recorded in the month. December saw the markets move ahead as favourable electoral outcomes and global uncertainties on the macro front abated. Large caps came back in favour, while mid and small caps were somewhat lackadaisical in the month.

Category 3 long-only Alternative Investment Funds (AIFs) remained quiet in December, recording 5.58% on average. Long-only funds invest in companies that are traded regularly in the Indian exchanges. They are unrestricted by any rigid mandate and can tweak their strategies to suit market conditions to derive the best returns.

In the Long Short Segment, 21 out of 23 funds recorded positive returns yet delivered a relatively lower return of 3.15% on average.

Continuing with the trend of close-ended funds doing better in the long-only segment, six of the top 10 strategies were close-ended. However, open-ended strategies continued to dominate the leaders’ list in the long-short category.

Top 10 performers

In December, the top long-only funds in terms of returns delivered above the standard benchmarks – Nifty 50 TRI and BSE 500 TRI. A couple also recorded double-digit returns in the month.

Here is the list of the top 10 funds in the category 3 long-only funds segment.

At the top of the pack was Nepean Capital’s Long-Term Opportunities Fund II with 10.88% returns in December. The scheme takes a multi-cap approach and is an India Special Situations fund.

Taking the second spot was Nippon India’s India Millennial Scheme – 3 with 10.59% return generated during the month. The fund invests in a multi-cap portfolio of stocks that are likely to benefit from the push in consumption-driven millennials in India.

First Water Capital Fund took the third position with 9.79% returns in December. The fund is predominantly focused on value and takes a concentrated approach to portfolio construction.

Samvitti Capital Private Limited’s Alpha Fund shared the third spot with 9.79% returns during December. The fund looks to deliver absolute returns by positioning itself on both the long and short sides of the market.

Nippon India’s Champions 21st Century – 6 came a close fifth with 9.74% returns in the month.

The category’s performance vis-à-vis the Nifty 50 TRI and BSE 500 TRI are depicted below.

The performance of the top 10 long-only funds and the comparison with Nifty 50 TRI and BSE 500 TRI for December are depicted below.

Top 5 long-short funds

The long-short category operates on a slightly complex sphere. Funds here are allowed to use sophisticated strategies across derivatives and equities. These long-short funds have considerable headroom to manoeuvre their portfolios by deciding the right approach while chasing returns with low volatility.

December wasn’t a favourable month for long-short, as the category average returns were at 3.15%, falling short of the benchmark indices.

The top five long-short AIF schemes for December are depicted below. All of the top five funds were open-ended.

Avendus Capital’s Enhanced Return Fund – 2 topped the list with 10.53% returns in December. The fund seeks to outperform the Nifty 50 index while limiting the downside. The portfolio comprises 70% long-only and 30% long-short strategies.

Whitespace Fund 1- Equity Plus was second in the list during December with 8.91% returns. The fund aims to capture the Nifty 50’s returns but with lower volatility by generating alpha in the futures & options space.

Nuvama Enhanced Dynamic Growth Equity Fund took the third spot with a 7.32% return during the month. The fund seeks to cushion downfalls and provide alpha over the long term.

ITI’s Long Short Equity Fund took the fourth position with 6.32% returns during December. The fund is driven by fundamentals and stocks are picked on the long and short sides.

Avendus Capital’s Equity Advantage Fund came fifth with 5.14% returns during the month.

The performance of long-short funds in December and the comparison with benchmarks are presented below.

Outlook

Multiple factors have been working favourably for the markets. Inflation is well under control globally. Central Bankers have given up being hawkish on interest rates. In fact, in the US, there are expectations of multiple rate cuts by the end of 2024. Geopolitical tensions have abated, treasury yields in the US have corrected to normal 4% levels and crude prices are under check.

Corporate earnings will decide the future course of action of the markets and the initial set of numbers have broadly been on expected lines, especially from information technology companies.

With the interim budget or voting around the corner, there are expectations around the announcements that the finance minister would make, especially on the reduction of personal taxes.

Note:

***Post Exp & Tax; **Post Exp, Pre-Tax; ##Gross returns; ###Post Exp & Pre Perf.Fees & Tax; ^^ Post Exp & Tax and Pre Perf.Fees

Disclaimer: This Blog is made for informational purposes only and does not constitute an offer, solicitation, or an invitation to the public in general to invest in any of the Funds mentioned. All the Returns mentioned in this blog are provided by the respective asset management companies and may vary based on their reporting structure (Pre-tax, Post-tax, Post-expenses, etc.) PMS Bazaar has taken due care and caution in the compilation of data and information. However, PMS Bazaar doesn’t guarantee the accuracy, adequacy, or completeness of any information. Investors must read the detailed Private Placement Memorandum (PPM), including the risk factors, and consult your Financial Advisor before making any investment decision/contribution to AIF. This Blog has been prepared for general guidance, and no person should act upon any information contained in the document. PMS Bazaar, its affiliates, and their office, directors, and employees shall not be responsible or liable for any investment action initiated. This Blog is intended only for the personal use to which it is addressed and not for distribution.