In February several category 3 long-only Alternative Investment Funds (AIFs) managed to make significant gains while the markets saw reasonable but modest gains, with standard benchmark indices moving up. The month saw the Nifty rally by 1.32%, while the broader market BSE 500 gained 1.66%.

The top 10 funds in the category managed to give 2-5 percentage points more than the Nifty and about 1.5-4.5 percentage points more than the BSE 500 TRI during the month.

Category 3 long-only funds invest in companies that are listed and traded with reasonable volumes in the BSE and NSE. They do not have any confining mandates and are thus unrestricted in the choice of their strategies based on the fund manager's perception of the market conditions and investor requirements. 

During the month, 28 category III long-only funds managed to outperform the Nifty 50 TRI, while 27 strategies delivered better returns than the BSE 500 TRI. 

The long-short category’s performance was a bit circumspect. We had 9 such funds delivering more than the Nifty 50 TRI. Against the BSE 500 TRI, the overall performance was lukewarm.

Long-only funds gave 1.04% on average in February. The long-short funds ended the month with 1.23% returns on average.

Closed-ended funds did very well in the long-only category with eight of the top 10 being such schemes. However, open-ended strategies continued to dominate the toppers’ chart in the long-short category during the month.

Capital Compounder Fund 1 from Carnelian Asset Management took the top position in the list with 7.4% returns in the month. It is a multi-cap sector agnostic strategy that blends accelerated growth, stable growth and opportunistic companies.

The Growth Opportunities Fund Scheme 1 from Ampersand Capital Trust came second with a 4.79% return during February. This fund invests in large, mid and small cap companies that are growth-oriented with a scalable model.

Taking the third position with 4.12% was the Diversified Alpha Fund from Abakkus Asset Manager. This fund invests in a portfolio of about 40 stocks across market caps and takes a value approach to company selection.

Growth Fund 2 from Abakkus Asset Manager was placed fourth with 4.1% returns in the month. This fund invests in about 30 stocks. For large caps, it uses a contra approach. Lower market cap investing focuses on bottom-up stock picking.

In the fifth spot was the India Millennial Scheme 3 from Nippon India with 4.01% returns during February. As the name suggests, the fund seeks to invest in businesses that are set to gain the most from millennial consumption and aspirations.

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 February are depicted below.

Top 5 long-short funds

Long-short funds are a tad more complicated in their investment strategies. They use quantitative and qualitative factors to decide their portfolio mix and use advanced strategies across derivatives and equities. These long-short funds go after returns while managing to keep volatility to the minimum level possible. 

In February, funds in the segment gave 1.23% on average. We had 10 funds outperforming the Nifty 50 TRI during the month. When the BSE 500 TRI is considered, eight outperformed the benchmark in February. 

Barring one, all the other top funds were open-ended.

The top five long-short AIF schemes for February are depicted below.

Nuvama Enhanced Dynamic Growth Equity Fund took first place with a 3.38% return during the month. The fund seeks to cushion downfalls and provide alpha over the long term.

ICICI Prudential Enhanced Dynamic Equity fund came on second with 3.24% returns in the month. It is an open-ended fund. This scheme seeks to use valuation metrics, cashflows and businesses with competitive advantages for its investment decisions.

Edelweiss Consumer Trends fund was the third in the charts with 2.59% returns during the month.

Helios India Long Short Fund took the fourth position in the list with 2.4% returns during February. The fund’s main strategy will be to go short on individual stocks in the futures market. It will be sector-neutral. Positions will be kept for three to 12 months.

ITI Long Short Equity Fund was the fifth in the ranking with 2.32% returns in the month. This fund seeks to outperform the Nifty index over a full equity market cycle, even as it protects downsides.

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

Summary and Outlook 

The interim budget was announced with lots of market anticipation about any tax relief for investors. While there were no such announcements, the allocation to infrastructure in FY25 and a well-defined path to fiscal consolidation were positives for the markets, especially bonds. The December quarter results were not as strong as expected with some segments coming in with numbers well below expectations. 

Small caps especially continue to face the heat with valuation concerns and market regulator SEBI’s diktat on stress tests for mutual fund holdings. Many domestic and international brokerages have reiterated the attractiveness of large caps in recent weeks and months, especially as we approach the volatile election period.

Given the long-drawn election process stretching up to June's first week, the market movement is likely to be sideways till then with occasional bouts of volatility.

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.