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Union MF has launched its Business Cycles Fund with a promise to be true to label with sharp sector cycle focus, maintain high active share and be benchmark agnostic in its efforts to deliver alpha from timely thematic/sectoral bets.
While rapid sector rotation lasting weeks and months in the market is a fact of life, data suggests that sectors do deliver strong alpha over 1-3 year periods (depending on how deep or short their cycles are) when their business cycle turns favourable. The idea is to capture these business cycle driven alpha opportunities rather than market momentum driven rotation plays.
The fund will dive further down into segments within sectors in its quest for alpha. The auto sector for example has different business cycles in play for 2 wheelers, passenger vehicles, commercial vehicles and auto component manufacturers. Likewise, within the broad pharma sector, hospitals have a very different growth dynamic compared to formulations manufacturers.
Between cap-size based investing and theme based investing, Harshad believes theme based investing offers better alpha generation opportunities as it is a more natural and sustainable way of investing while cap sized based classifications can be arbitrary and do not capture any business context.
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