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When compared to other diversified funds, the business cycle fund permits the fund to consider aggressive sector over/underweight calls across distinct economic periods. Portfolio churn, market cap allocation, and the quantity of stocks in the portfolio are determined by the business cycle stages.

Within equity portfolios, business cycle funds provide an excellent diversification option. Business cycle-oriented funds can be invested based on one’s risk profile, investing profile, and target allocation. Business cycle funds invest in business cycles with a few sectors that are projected to perform well depending on the economy’s stage without regard for any other goals.

Recently, Aditya Birla Sun Life AMC announced the launch of the Aditya Birla Sun Life Business Cycle Fund. It’s an open-ended equity fund that invests according to the business cycle.

Fund strategy

The portfolio will be positioned based on the expected business cycle phase. Being aware of a business cycle can aid in avoiding investing traps and, as a result, strives to improve the risk-reward proposition over time.

Because investors may not recognise the stages of economic and sectoral cycles and transition accordingly, a scheme like the Aditya Birla Sun Life Business Cycle Fund can be used to take advantage of investment possibilities that are matched with shifting phases of the business cycle.

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

The scheme’s benchmark index is the S&P BSE 500 Total Return Index (TRI), which includes all of India’s major industries.

Management views

Any investor will be able to navigate through various stages of the economic cycle while also having a presence in the suitable industries at the right time. Aditya Birla Sun Life Business Cycle Fund would provide investors with precisely that.

“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. In contrast, non-defensive sectors like metals, financials, and cement provide better returns during the expansion phase,” said A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC.

“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,” he added.

What should investors know?

-The fund falls under the ‘Very High’ risk category, and investors should check the product suitability with their financial advisors.

-The total expense ratio is expected to stay within the limit of 2.25% as per Sebi regulation.

-The fund will be managed by the fund managers Vineet Maloo, Nitesh Jain, and Vinod Bhat (for overseas investment).

– Entry load is NIL, and exit load is 1% of the applicable NAV if redeemed/switched out on or before the expiry of 365 days from the date of allotment.