Nippon and Axis Mutual Funds to Launch Active Momentum Funds amid Growing Interest
Momentum investing has been gaining fast traction in the recent past and two of the largest mutual fund houses – Nippon India and Axis are all set to launch active momentum funds. The new funds are being released at a time when momentum as an investment strategy keeps on paying rich dividends in a bullish market.
Currently, there is only one active momentum fund in the mutual fund universe. The rest of the funds created based on momentum are basically on a passive model. The new launches from Nippon and Axis have therefore tilted the momentum towards the active way of managing this strategy.
Momentum Investment Strategy and Its Recent Performance
Momentum investing is a system that assumes a stock that begins to trend upward or downward will continue in this direction for some time afterwards. One of the riskier strategies, this approach means investors following this try to profit from market volatility by going long on rising stocks.
Momentum-based strategies have returned good returns in the recent past. For instance, the Nifty200 Momentum 30 index has returned over 65% in the last year, higher than the Nifty 500 which rose 38% during this period. Perhaps, this has evinced a heightened interest in momentum-based mutual funds.
Active vs. Passive Momentum Funds
Most of the momentum funds available in India follow a passive structure, but experts suggest that the active approach gives them much more flexibility and control. For instance, active momentum funds help fund managers shield the portfolio from downside risks by scaling down equity exposure when the market starts to decline. This is unlike the passive ones, which have a fixed schedule for rebalancing very often every six months, whatever the market scenario.
This active strategy also allows the fund manager to decide on the universe of stocks and the number of stocks in the portfolio, hence giving greater scope and perhaps, better returns.
New Active Momentum Funds
Axis Mutual Fund has sought the permission of the Securities and Exchange Board of India to launch its active momentum fund. This fund will construct its portfolio on a proprietary quantitative model. It is based on different measures: price-based momentum strategies incorporate the price and total return of securities along various time dimensions to yield a momentum score. The model then ranks the securities according to this score, based on momentum, after which the portfolio manager can use his or her judgment in the selection and weighting of securities in the portfolio based on prevailing market conditions.
Similarly, Nippon India Mutual Fund is also poised to launch its Active Momentum fund, for which the operations will be managed through a quantitative model. The model focuses on factors of momentum, relating to both absolute and relative momentum, with the purpose of capturing market trends through the dimension of price momentum while adjusting for risk. It is designed to work both in the upward and downward phases of the market and provide flexibility in adapting to different market conditions.
Active momentum funds have more flexibility in investment and control, hence becoming attractive to investors, especially when the markets turn turbulent. For the fact that these funds let fund managers respond in real-time to the shifts in dynamics of the market, they are also better at downside protection than their passive counterparts. Moreover, the ability to adjust the stock universe and weighting allows for the creation of higher-quality portfolios that could result in better long-term performance.
As the momentum-based investment strategy continues to be in favour, the launch of Nippon’s and Axis Mutual Funds’ active momentum funds indicates an appetite for this fund type. The new schemes may emerge as a good choice for investors who want an active play on momentum to capture the crest in bull markets and plummet during bear phases.
Conclusion
In the end, there is an unveiling of the rising urge for flexibility in investment strategies, with the launch of active momentum funds from Nippon and Axis. This might give more power to investors in terms of better control and possibilities of higher returns, especially in a market where momentum acts as a strong driving factor.
