Top 5 business cycle mutual funds compared: AUM, returns and portfolio strategy

Business cycle funds are a category of thematic mutual funds that aim to capture investment opportunities across different stages of the economic cycle.

Instead of maintaining a fixed sector allocation, these funds actively shift their exposure across sectors, industries and market-cap segments based on the fund manager's assessment of changing economic conditions.

Let's understand how these funds work and the top 5 business cycle funds by Assets Under Management (AUM).

How do business cycle funds work?

The investment approach is based on the premise that sectors tend to perform differently across different phases of the economy. A typical business cycle moves through four stages: growth, recession, slump and recovery.

As economic conditions change, fund managers rebalance their portfolios by increasing exposure to sectors expected to benefit from the prevailing phase and reducing exposure to those that may underperform.

For example, during a recovery and expansion phase, sectors such as financials, consumer discretionary, and metals may rise. On the other hand, during a recession and slump phase, fund managers may increase exposure to relatively defensive sectors such as healthcare, pharmaceuticals, or consumer staples, which tend to be less sensitive to economic cycles.

What are the top 5 business cycle funds by AUM?

ICICI Prudential Business Cycle Fund

Among the five funds, ICICI Prudential Business Cycle Fund is the biggest by assets under management (AUM) at ₹15,798 crore and has delivered the highest three-year return of 18.77%.

The portfolio is almost entirely invested in equities (97.88%), with a small allocation to debt and cash.

It also has the highest large-cap exposure of 80.42% among the peers, making it relatively more tilted towards established companies.

Its top holdings include HDFC Bank, ICICI Bank, and Larsen & Toubro, reflecting a preference for large-cap financial and infrastructure companies.

Kotak Business Cycle Fund

Kotak Business Cycle Fund has an AUM of ₹3,135 crore and generated a 17.23% CAGR over the past three years.

The scheme maintains an equity-focused portfolio while holding 3.13% in cash, with no debt allocation.

Compared with ICICI Prudential's fund, it has a more balanced market-cap allocation, with 45.52% in large caps, 23.67% in mid caps, and a relatively higher 30.81% in small caps.

Its top 3 holdings are ICICI Bank, Aditya Infotech, and Axis Bank.

Tata Business Cycle Fund

With an AUM of ₹2,675 crore, Tata Business Cycle Fund has delivered 16.32% returns in the last three years.

The portfolio consists of 97.02% equity and 2.98% cash, with no debt allocation. Its market-cap distribution is similar to Kotak's, with 47.72% in large caps, 25.78% in mid caps, and 26.50% in small caps.

The fund's largest holdings include Reliance Industries, Metropolis Healthcare, and Jindal Steel.

HDFC Business Cycle Fund

Among the five funds, HDFC Business Cycle Fund has delivered the lowest three-year CAGR of 12.73%, while managing assets of ₹2,577 crore.

Among the five funds, it has the lowest equity exposure at 92.55% and is the only one with a 1.14% allocation to real estate. This fund also has the highest cash allocation of 5.21%.

Its market-cap exposure is balanced with 47.59% in large caps, 24.43% in mid caps, and 27.98% in small caps. The fund's top holdings are Bharti Airtel, Eternal, and ICICI Bank.

Axis Business Cycles Fund

Axis Business Cycles Fund manages ₹2,058 crore in assets and gave 15.20% returns over the last three years. The fund has allocated 96.69% to equities, 3.29% to debt, and a negligible 0.01% to cash.

Its market-cap allocation is relatively balanced, comprising 52.40% large caps, 24.12% mid caps, and 23.49% small caps.

The top holdings include Larsen & Toubro, Axis Bank, and ICICI Bank.

Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.