Aditya Birla Sun Life AMC Limited, a subsidiary of Aditya Birla Capital Limited (a significant non-bank financial services conglomerate), and investment manager to Aditya Birla Sun Life Mutual Fund (ABSLMF) has announced the launch of Aditya Birla Sun Life Business Cycle Fund. It is an open-ended equity scheme that follows a business-cycle-based investing theme. The New Fund Offer (NFO) opens for subscription on November 15, 2021, and closes on November 29, 2021.
Business cycle is a critical determinant of equity sectors performance over time periods. Shift from one stage of the business cycle to the next often leads to sector rotation with different sectors assuming performance leadership in different economic phases. A ‘business cycle’ is typically defined as periods of expansion and contraction in economic activity. It is divided into four phases – expansion, peak, contraction and slump, and all four stages have a cascading impact on the markets. The length and dynamics of each phase vary based on a range of factors such as regulatory, policies, reforms, geopolitics, domestic or global events, among other things. On the other hand, each industry’s dynamics can also play out differently during a business cycle. So, an industry-specific cycle could differ from the stage of an ongoing cycle in the economy.
Any investor would require navigating through these phases of a business cycle, at the same time will need to have presence across the right sectors, at the right time. And that is precisely what Aditya Birla Sun Life Business Cycle Fund will offer investors. It will follow a top down approach of portfolio construction to identify stage of business cycle basis multiple parameters; then deep dive into sector cycles and opportunities, and bifurcating the portfolio into defensive and non-defensive sectors; subsequently use bottom up approach to identify strong companies within those sectors using the fund house’s Growth at Reasonable Price (GARP) philosophy. It will also capitalise on select global opportunities by following global industry trends and wait 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.
Commenting on the launch, Mr. A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC Limited said, “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.”
The scheme will position the portfolio based on the expected phase of the business cycle. Being conscious of a business cycle can help avoid investment traps and thus aims to enhance the risk-reward proposition in long term. Since investors may not be able to identify the stages of economic and sectoral cycles and transition accordingly, a scheme like Aditya Birla Sun Life Business Cycle Fund can be an investment vehicle to take advantage of investment opportunities that are aligned with changing phases of a business cycle.