Long-only AIFs sizzle with nearly 9 in 10 funds beating Nifty in January

Equity markets were relatively unchanged in January, with frontline indices not moving much. The unravelling of the corporate earnings season and anticipation around the interim budget meant that the Nifty 50 TRI barely recorded 0.02% returns in the month, while the broader market BSE 500 TRI gave 1.92%. Small caps were back in favour during January after a dull December.

Despite moderate indices, category 3 long-only Alternative Investment Funds (AIFs) had a solid month, with funds delivering well enough to go past standard benchmarks. 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.

During the month, 55 of the 63 category III long-only funds managed to outperform the Nifty 50 TRI, while 43 strategies (nearly 8 in 10) delivered better returns than the BSE 500 TRI.

The long-short category’s performance was also healthy in January. As many as 15 of the 23 funds delivered more than the Nifty 50 TRI. Against the BSE 500 TRI, the overall performance was lukewarm.

Long-only funds gave 3.56% on average in January. The long-short funds ended the month with 0.65% returns on average.

Open-ended funds did very well in the long-only category with seven of the top 10 being such schemes. Again, open-ended strategies continued to dominate the toppers’ chart in the long-short category.

Top 10 long-only performers

In January, the top long-only funds in terms of returns delivered way above the standard benchmarks – Nifty 50 TRI and BSE 500 TRI. Also, the top five strategies gave double-digit returns, while the others managed to deliver 4-7 percentage points more than the indices.

As mentioned earlier, seven of the top 10 long-only funds were open-ended, while the remaining four were closed-ended. This is the opposite of what was prevalent in the previous few months when closed-ended funds dominated the toppers’ list.

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

Malabar Value fund from Malabar Fund managers grabbed the top spot in January with a whopping 15.91% returns. This closed-ended scheme invests in a concentrated portfolio of companies with competitive advantage, pricing power and runway for profitable growth

Coming a close second was the ACE fund from Prudent Equity with 15.71% during the month. The open-ended fund considers six factors – growth, corporate governance, return ratios, margin of safety, capital structure and capital allocation – for investing and does so if they pass the criteria.

First Water Capital Fund – a closed-ended strategy – took the third position with 11.66% returns in January. The fund is predominantly focused on value and takes a concentrated approach to portfolio construction.

The fourth place was grabbed by I Wealth Fund with 11.07% returns.

In the fifth spot was Rational Equity Flagship Fund I with 10.35% returns during the month. The fund invests in companies making their market journey from Rs 500 crore to Rs 50,000 crore.

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 January are depicted below.

Top 5 long-short funds

Long-short funds aren’t that simple in their investment style. The category operates with complicated strategies to deliver better returns. 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.

In January, funds in the segment gave 0.65% on average. We had 15 funds outperforming the Nifty 50 TRI during the month. When the BSE 500 TRI is considered, three outperformed the benchmark in January. All the five top funds were open-ended.

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

ICICI Prudential Enhanced Dynamic Equity fund came on top with 3.86% returns in the month. It is an open-ended fund.

Helios India Long Short Fund came second in the list with 3.52% returns during January. The fund’s main strategy will be short individual stocks in the futures market. It will be sector-neutral. Positions will be kept for three to 12 months.

Nuvama Enhanced Dynamic Growth Equity Fund took the third spot with a 2.7% return during the month. The fund seeks to cushion downfalls and provide alpha over the long term.

Dolat's Absolute Return strategy took fourth place with 1.78% returns in the month. The fund invests in equity and equity derivatives and deploys complex strategies to reduce risk and improve returns.

Altacura AI Absolute Return Fund was placed in the fifth spot with 1.51% returns. The fund deploys strategies such as low-risk volatility dispersion trade, long-short portfolio, and option strategies linked to market outlook.

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

Summary & Outlook

Several sectors that reported earnings disappointed in January, including software, FMCG, chemicals, large banks and a few others. However, companies in spaces such as capital goods, PSUs, defence, real estate, automobiles and a few other pockets did well.

But overall, corporate earnings growth is expected to maintain its upward trajectory in the coming quarters. Valuations are in a slightly uncomfortable zone right now, especially in the mid and small-cap spaces.

The interim budget was welcomed by the industry players for the strong fiscal discipline it sought to project and lower borrowings. Increased capex outlay for FY25 at Rs 11.11 lakh crore was positive for the markets.

Inflation remains tame and the jobs data in the US has started becoming weak. However, rate cuts aren’t immediately on the table for the Federal Reserve or any other Central Bank as yet. Crude prices remain under control.

With India heading into election mode over the next 8-10 weeks, there may be some nervousness and occasional volatility in the markets.

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.