L&T Business Cycle Fund

An open-ended diversified equity fund which aims to deploy a business cycle approach to investing.

Summary

Type	An open-ended equity fund	Benchmark Index	S&P BSE-200 Index
Min. Investment (lump sum): Additional purchase:	For lump sum -> Rs 5,000 and in multiples of Re 1 thereafter For Systematic Investment Plan (SIP) Minimum instalment amount: Rs 1,000 Minimum number of instalments: 6 for monthly SIP instalments and 4 for quarterly instalments   Rs 1,000 and in multiples of Re 1 thereafter	Plans: Options (under each plan):	Regular (also known as Non-Direct) Direct   Growth Dividend (payout and re-investment facility)
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%*
Entry Load	Nil	Exit Load:	1.00% if the units are redeemed / switched-out within 18 months from the date of allotment or purchase applying First in First out basis Nil for units redeemed / switched-out after a period of 18 months from the date of allotment or purchase applying First in First out basis
Issue Opens	July 30, 2014	Issue Closes:	August 13, 2014

*Direct Plan shall have a lower expense ratio to the extent of distribution expenses / commissions which is charged in the non-direct Plan  

Investment Objective*

The investment objective of the scheme is to seek to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity related securities, including equity derivatives, in the Indian market with focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy.

 

*Source: Scheme Information Document

 

Is this fund for you?

Business cycles in an economy are typically characterised by fluctuations in the economy, wherein there are expansions and contractions which are measured by the real GDP growth rate and other macroeconomic variables. You see, business cycles are said to be critical determinants for the performance of equities in the intermediate term. Thus relative performance of performance of equity market sectors typically tends to rotate as the overall economy shifts from one stage of the business cycle to the next, with different sectors assuming performance leadership in different economic phases. Thus typically during the expansionary phase of the economy cycle, cyclical sectors such as consumer durables, capital goods, etc. are at forefront in terms of performance; but during the contraction phase or times of economic slowdown, defensive sectors such as consumer staples and healthcare tend to do well.

L&T Business Cycle Fund (LBCF) is an open-ended diversified equity fund, which aims to deploy a business cycle approach to investing by identifying such economic trends and investing in the sectors and stocks that are likely to outperform at any given stage of business cycle in the economy. Thus given such an investment mandate, the fund seems to adopt and opportunities style approach of investing, but with focus on business cycles for dynamic asset allocation between various sectors and stocks.

Thus, seemingly being an opportunities style kind of a fund deploying business cycle approach to investing; the risk which LBCF would be expose to may be high. Likewise given the aforementioned mandate, the portfolio turnover ratio of the fund may also be high. Therefore before investing one's hard earned money, it is imperative to take into account his / her risk appetite and risk tolerance.

 

Portfolio & Investment Strategy

While deploying a business cycle approach to investing (wherein in it would identify economic trends and invest in stock and sectors which are likely to outperform at any given stage of business cycle in the economy), as mentioned earlier, LBCF would depict trait of an opportunities style of investing. It is said that to determine business cycles, the fund manager could use following indicators amongst host of others:
 

• Corporate profit growth trends
• Inventory levels
• Credit growth
• Capacity utilisation levels
   

And to build its portfolio, the fund managers would combine a clear macro view with a bottom-up approach for stock selection, wherein it would lay emphasis on the following aspects amongst others:
 

• Company fundamentals
• Valuations
• Competitive positioning
• Management quality

It is said that the fund manager will favour companies that offer the best value relative to their respective long-term growth prospects, returns on capital and management quality.

But while following the aforementioned investment mandate, the portfolio of LBCF may be churned in order to take advantage of movements in the securities market and to maximize the average returns on the portfolio while maintaining a desirable risk profile and adequate liquidity.

The asset allocation which will be followed by the fund will be as under:

 

Instruments	Allocation Range (%)		Risk Profile (Low / Medium / High)
	Minimum	Maximum
Equity, equity related securities* (including Indian and foreign equity securities as permitted by SEBI/RBI^)	65	100	High
Debt and Money market instruments	0	35	Low to Medium

* Includes investments in equity derivatives up to 25% of the net assets of the Scheme.
^ The Scheme may invest in Foreign Securities upto 10% of its net assets subject to the Eligible Investment Amount. Investment in Foreign Securities shall be subject to the investment restrictions specified by SEBI/RBI from time to time.
The scheme does not propose to invest in securitised debt.
(Source: Scheme Information Document)  

LBCF will benchmark its performance against S&P BSE-200 since it's a broad based index and its composition broadly represents the fund's investment universe.

 

Fund Manager Profile

AEAF will be managed by the duo Mr Venugopal Manghat and Mr Abhijeet Dakshikar.

Mr Manghat is the Co-Head Equities at L&T Mutual Fund and has been with L&T Mutual Fund since January 2012. Prior to joining L&T Mutual Fund he was with Tata Mutual Fund, where he served for almost 17 years and his last held position was Co-Head Equities. He is an MBA in Finance and also holds a Bachelor's Degree in Science with specialisation in Mathematics [B.Sc. (Mathematics)]. At L&T Mutual Fund, at present he also manages L&T India Large Cap Fund, L&T India Value Fund, L&T Indo Asia Fund, L&T Monthly Income Plan (equity portion), L&T MIP Wealth Builder (equity portion) and L&T Arbitrage Opportunities Fund.

Mr Dakshikar is a Senior Analyst at L&T Mutual Fund and is the fund manager for foreign securities. He holds over 10 years of experience in research and fund management. Prior joining L&T Mutual Fund in June 2012, Mr Dakshikar has worked with Mirae Asset Global Investment Management as a Fund Manager and prior to that with RBS Equities Ltd. and Man Financial Securities Ltd. as a research analyst. He holds a Bachelor's Degree in Mechanical Engineering [B.E. (Mechanical)] and a Master degree in Management Studies (M.M.S.) in Finance. Mr Dakshikar also manages overseas investments for L&T Equity Fund, L&T India Special Situations Fund, L&T India Large Cap Fund, L&T India Value Fund, L&T Emerging Businesses Fund, L&T Indo Asia Fund, L&T Global Real Assets Fund, L&T India Prudence Fund and L&T India Equity and Gold Fund.

 

Fund Outlook

As per the mandate while LBCF will deploy a business cycle approach to investing by identifying such economic trends and investing in the sectors and stocks that are likely to outperform at any given stage of business cycle in the economy; the returns by the fund will be contingent upon the success in identifying business cycles and they playing out well (which depends upon selection of stocks and sectors).

Moreover given its mandate, the fund may also experience a high portfolio turnover ratio as it takes advantage of movements in the securities market to maximize the average returns on the portfolio while maintaining a desirable risk profile and adequate liquidity. Thus given that, the fund may be exposed to high portfolio volatility.

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