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Tata Mutual Fund has announced the launch of Tata Business Cycle Fund, an open-ended equity scheme following the business cycle-based investing theme.

The new fund offer (NFO) opens on 16 July and will close on 30 July.

Tata Business Cycle Fund aims to deploy the business cycle approach to identify economic trends and invest in sectors and stocks that are likely to outperform, a release issued by the mutual fund house said.

During an expansion phase, it will buy either sector leaders or companies benefiting disproportionately from the sectoral tailwinds, it said. During a contraction phase, it will invest in companies from sectors that provide a cushion during downcycles, the release added.

The scheme will be benchmarked to the Nifty 500 Total Returns Index (TRI) and will be managed by Rahul Singh, chief investment officer, equities, Tata Asset Management; and Murthy Nagarajan, head of fixed income at Tata Mutual Fund on the debt side. For its overseas allocation, it will be managed by Venkat Samala. The scheme is allowed to invest up to 20% of its corpus outside India.

Speaking of the launch, Singh said, “The focus has shifted to business cycles investing for two reasons. Business cycles have become shorter. Cycles which earlier lasted 4-5 years have now shortened to 1-2 years. Over the last few years, the impact of top-down sector allocations has been on alpha generation, which has been very high. This fund would invest in businesses on a macro basis, with at least 80% of the portfolio invested as per business cycles theme. We believe cycles have become shorter and a portfolio needs to adapt quickly to the changing environment. Hence, the need to have Tata Business Cycle Fund in your portfolio."

Compared with other diversified funds, the business cycles theme allows greater sector concentration in terms of sector over/underweight. The other portfolio parameters such as portfolio churn, market cap allocation and number of stocks will be dependent on the stage of the economic cycle, the release from Tata Mutual Fund added.

ICICI Prudential Business Cycle Fund was launched in January and is up 12.28% as of 14 July, roughly on a par with the S&P BSE 500. L&T Business Cycles Fund was launched in 2014, but has lagged the S&P BSE 500 with a 11.65% CAGR compared with 15.19% on the benchmark.

However, the concept has gained ground among fund houses with Aditya Birla Sun Life Asset Management Company also filing papers with Sebi for a business cycle fund.

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