'As markets stabilize...: Edelweiss MF CEO Radhika Gupta on EBCF’s path to a turnaround

Edelweiss Mutual Fund's Business Cycles Fund EBCF has dropped 19% since its launch leaving investors anxious. Edelweiss Mutual Fund CEO Radhika Gupta on Wednesday explained why the fund was down.

"Since I have gotten a few questions on Edelweiss Business Cycles Fund I am sharing some perspective on performance" Gupta stated "For us @EdelweissMF communicating honestly and openly with both our investors and partners is extremely important in good and less good times"  

Gupta explained that EBCF follows a factor-based strategy that reacts to business cycles, combining momentum with other market factors. But the market’s wild swings over the last three months have thrown this model off balance. "Momentum, which benefits from strong market trends, struggled due to high volatility resulting in frequent sector and factor rotations. This hurt," she admitted. "Since momentum is a key factor in EBCF’s multi-factor strategy, its recent weakness — along with struggles in other factors — has led to the fund’s underperformance."

Since its launch in July 2024, EBCF has fallen -19.09%, compared to -10.21% for the Nifty 500 as of January 28, 2025. But, Gupta pointed out that momentum-based indices have suffered even more, with the Nifty 200 Momentum 30 down -20.37% and Nifty 500 Momentum 50 dropping -24.07%. "EBCF has in fact marginally outperformed these momentum-based indices," she noted.

The CEO hinted that the fund was likely to psot recovery in the next few months or a year. History suggests that the fund could bounce back within 4 to 6 quarters, according to Gupta. "In past instances, a -9% underperformance vs the Nifty 500 led to an average 15% return over the next 12 months," she stated.

To position for recovery, the fund has adjusted its holdings. "We have increased exposure to defensive sectors like pharma and consumer durables over the last few months (we are now 20% overweight in these sectors as compared to NSE 500 Index), and also financials," Gupta revealed.

At the same time, the fund has reduced its stake in cyclical sectors like capital goods and construction. "As markets stabilize, multi-factor-based portfolios are expected to realign themselves fully, which should help improve performance and recover the lost ground," she explained.