At a time when most experts believe that large caps will outperform in CY24, Motilal Oswal launches a differentiated active large cap fund whose ACE philosophy promises
(1) Much larger active share than peers (60-70% vs40-45%)
(2) Concentrated portfolio of 30 stocks (vs 55-60 of peers) and
(3) Equal weights (3-3.5%) for all stocks rather than heavy bets on top weighted stocks
Atul says high active share and a concentrated portfolio are well balanced off by an equal weight proposition from a risk management perspective. Studies in Indian large caps as well as overseas markets show that equal weighted funds have delivered significant alpha over “benchmark-hugging” funds with low active shares.
Persistent FII selling has been one of the key reasons for muted large cap performance in ’22 and ’23 compared to the big bull market seen in the small and midcap segments. With rising interest rate regime now behind us, he believes the narrative-led FIIs are waiting for clarity on the upcoming general elections due in May, to go all-in with India investments – which are usually large cap tilted.
He expects large caps’ relative undervaluation to be corrected both by a move up in large caps led by FII buying as well as domestic rotation from small/mid to large caps following momentum that FII buying can generate in large caps.
25 out of his 30 stocks will be large caps and 5 will come from small/mid caps segment as well as interesting IPOs which could offer both short and medium term investment opportunities.