The new Axis Momentum Fund marries momentum strategy –the best performing smart beta factor that is used widely in passive funds –with an active management overlay to present investors an innovative alpha oriented portfolio diversifier.
Unlike passive strategies that typically use 6 and 12 month price momentum, Karthik intends using 1, 3, 6 and 12 month price momentum with varying weights, apart from other parameters including liquidity to determine the consideration set of stocks for this portfolio.
Sector allocations can vary upto +6%/-6% over Nifty 500benchmark weights. Within this sectoral allocation, stocks that achieve the highest weighted momentum score will be included in the portfolio.
Portfolio will be re-balanced monthly to ensure sufficient dynamism.
Karthik says its not entirely true to say that momentum works only in bullish phases of market cycles – he points out a number of instances when it outperformed markets during corrections.
Based on current momentum, the portfolio is likely to be underweight financials, consumer staples and global cyclicals and overweight consumer discretionary and industrials. Healthcare and IT are likely to be marginally overweight – though this can change in coming months’ re-balancing decisions, if current trends on price performance continue.
Unlike certain business cycles funds which strive to capture sector momentum, Karthik says his job is not to take a view on which business cycle is likely to turn next and position the fund for it – his job is to see reality – expressed in price performance. If momentum is visible, it will show up in the weighted scores and will be included once its score is sufficiently high.
Karthik says an active momentum fund like this new one can be a very useful alpha oriented portfolio diversifier for any equity portfolio, given the highly differentiated fund strategy and likely differentiated portfolio composition.