A rising tide lifts many boats, or so they say. The steady rally in the equity markets that continued in July meant that Alternative Investment Funds (AIFs) in category 3 delivered strongly in the month. Category 3 AIFs are predominantly of two types – long-only and long-short. The long-only funds that invest in listed stocks and are somewhat like mutual funds without attendant constraints are the most keenly followed from an equity perspective.

In July, as many as 53 of the 61 category-3 long-only funds (nearly 9 in 10) delivered more than the Nifty 50 TRI. The long-short category was not as sparkling, with only 3 of the 20 funds outperforming the Nifty 50 TRI during the month. We had the Nifty 50 TRI delivering 3.03% in July, while the BSE 500 TRI gave 3.95% during the month.

Long-only funds gave 5.71% on average during July. However, long-short funds delivered only 1.6% on average during the month.

A mix of strategies figured among the top performers in the long-only segment.

Top 10 long-only performers 

It was a spectacular performance by the top long-only funds, which delivered 3-4 times the returns of the Nifty and BSE 500 in July.

As many as 7 of the top 10 long-only funds delivered double-digit returns during the month. And 7 of the top 10 AIFs were closed-ended funds.

Here is the list of the top 10 funds (*out of 61 strategies monitored by PMS Bazaar) in the category-3 long-only funds segment  -

Topping the chart with a strong 15.32% return in July was Aequitas Equity Scheme 1, from the Aequitas Equity Fund stable. The AIF invests in Indian public equities and looks to buy potential multi-baggers. It usually invests in 16-20 industry leaders.

Second on the list was Malabar Fund Managers’ Malabar Value Fund, with 14.64% during the month. The fund invests in publicly listed and a few private firms as well. Given its focus on value style, the AIF invests in companies with high return ratios, strong cash flows, healthy balance sheets and run by capable managers.

I Wealth Fund 2 came in third with 11.99% returns in July. The fund invests with a framework that involves macro analysis, quantitative algorithms, process orientation, and risk management.

In fourth place was the ACE Fund from Prudent Equity Private Limited, with an 11.43% return during the month. This AIF invests in growth-oriented companies and applies several qualitative and quantitative filters to select stocks.

Samvitti Capital’s Alpha Fund came in fifth, with 11.34% recorded in July.

The category average and the comparison with standard indices are presented below.

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

Top 5 long-short funds

Long-short funds in the AIF category-3 are allowed to deploy all kinds of hedging and complex derivative strategies to optimize returns for investors.

July was a lukewarm month for these funds. As mentioned earlier, only 3 of the 20 AIFs in the segment beat the Nifty 50 TRI, and only one delivered more than the BSE 500 TRI. 

The top five long-short AIF schemes (*out of 20 strategies monitored by PMS Bazaar) are depicted below. All five are open-ended schemes.

Volvin Growth Fund – Active Rabbit was on top of the list, with 4.19% returns delivered during the month. This AIF is similar to a diversified equity fund. It is passive but uses derivatives for hedging or for booking profits in the markets using the covered call strategy.

Helios India Long Short Fund was next on the list with 3.63% returns generated during the month. The fund shorts individual companies on India’s futures markets. Positions are held for 3-12 months for single stock futures.

Nuvama Enhanced Dynamic Growth Equity fund came third in July, with 3.51% returns.

Whitespace Fund 1 – Equity Plus came fourth in the month, with 3.03% returns. This AIF uses a combination of index mimicking, leverage, hedged futures, and options strategies using index and statistical modeling to deliver better than Nifty returns.

Avendus Capital’s Enhanced Return Fund 2 came fifth in the list with 3.01% returns during the month. Though falling under the long-short category, the fund is predominantly a long-only AIF and looks for high alpha and low beta while investing so that it could outperform the Nifty and reduce the downsides.

The performance of long-short funds in the month of July and the comparison with benchmarks are given below. 

For investors, long-only funds have had a wonderful run in July, especially the ones that invested in the top 10-15 AIFs.

In the foreseeable future, inflation concerns have returned to Indian markets with rising food and vegetable prices on the back of erratic monsoons and their uneven spread across the country. Also, the Reserve Bank of India (RBI) has mandated an increase in the incremental cash reserve ratio for banks. A confluence of factors means that interest rates may remain elevated for the rest of the year and beyond. As the festive season starts, consumer spending may boost market sentiments, though inflation may play a minor spoilsport.

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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.