NFO Watch: Should You Buy Aditya Birla Sun Life Business Cycle Fund?

The Indian stock markets are on a roll. Investors are in a frenzy and fund houses are using the opportunity to offer new avenues to investors by launching new fund offers. More than five NFOs were rolled out on November 15. Aditya Birla Sun Life Business Cycle Fund (ABCF) is one of them. 

ABCL is more like a sector rotation fund and falls in the thematic fund category. This category comes with a higher degree of risks as these funds are aggressively managed. The fund manager moves in and out of stocks and sectors fairly quickly and, as the name suggests, scouts for the next opportunities in the emerging sectors.

Typically, such funds follow a concentrated portfolio approach, which means that any positive news from emerging sectors will help boost returns significantly. On the flipside, any negative news from these sectors will hurt the returns if not anticipated in advance.  

Portfolio Approach 

When you invest in a sector fund, it is prudent to enter and exit the sector at the right time. So, you need to have a presence across the right sectors, at the right time and that is precisely what ABCF will offer investors.  

The fund will follow a top-down approach of portfolio construction to identify stages of a business cycle basis multiple parameters; then deep dive into sector cycles and opportunities, and bifurcate the portfolio into defensive and non-defensive sectors. It will subsequently use a bottom-up approach to identify strong companies within those sectors using the fund house’s Growth at Reasonable Price (GARP) philosophy.

The fund will also capitalise on select global opportunities by following global industry trends and waiting for a favourable point in the industry capital cycle. The benchmark index for the scheme is S&P BSE 500 Total Return Index (TRI), which covers all major industries in the Indian economy. 

“The economy, periodically, undergoes expansionary and contractionary phases. Research suggests that sectors do not provide systematic performance through business cycle phases. Defensive sectors like FMCG, healthcare and IT provide better returns through the contraction phase while non-defensive sectors like metals, financials and cement provide better returns during the expansion phase.

With no sectoral and market-cap bias, Aditya Birla Sun Life Business Cycle Fund will actively identify investment opportunities and manage allocation through various business cycles to generate returns,” says A. Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC Limited. 

What Should You Do? 

The fund could be an option for the investor who does not want to shy away from risk and wants to take advantage of emerging sectors. However, conservative investors may give it a miss. It remains to be seen how the fund manager spots and exploits business cycle opportunities for investors.