Active momentum funds have demonstrated a clear edge during heightened volatility. They have outperformed the broad market indices over the last six month, with several funds delivering double-digit gains during the period.
In the last six months, active momentum funds delivered an average return of 9% as compared with -2.8% for the Nifty 100 TRI. The outperformance reflects their ability to swiftly rebalance portfolios, reduce exposure to weakening trends, and capture stocks demonstrating strong relative strength. Thus this dynamic portfolio management allows investors to participate in emerging opportunities instead of remaining tied to a static basket, making them a suitable option during periods of elevated market volatility.
“Active momentum funds allow fund managers to select stocks using a combination of quantitative models and qualitative research, enabling quicker responses to changing market conditions and better risk management,” says Nirav R Karkera, head of research, W by Groww, wealth management arm of Groww.
Active rebalancing
Fund managers can rebalance any time, hold cash, limit position sizes, and mix in other factors as well. Right now, three types are quite popular. Multi-factor blends price momentum with earnings revisions and volatility or beta filters. For instance, Nippon India’s fund adds minimum volatility and beta to try and cushion the downside.
Quality-momentum blends look at return on equity and earnings stability before applying the momentum filter. There are midcap and multicap versions, which use the same approach but across a wider set of stocks.
During heightened volatility, active momentum investing is not merely about owning momentum stocks—it is about actively managing momentum. “By combining quantitative models with active risk controls, these funds preserve capital during corrections while capturing upside when leadership changes, resulting in meaningful outperformance over broader market benchmarks,” says Aditya Agarwal, co-founder, Wealthy.in, a wealth management platform for mutual fund distributors.
Satellite allocation
Momentum investing is inherently cyclical and can witness phases of underperformance when market leadership reverses sharply.
Sonam Srivastava, founder, Wright Research PMS, says momentum works through repeated cycles of trend capture and trend reversal, and a shorter window delivers whichever half of that cycle the investor happened to buy into. “It is best used as a satellite allocation, not the core of your portfolio,” she says.
Disclaimer: The views expressed in this article are solely those of the author and do not reflect the official policy, editorial position or views of Financial Express. The article is intended for informational purposes only and should not be construed as tax, legal or financial advice.
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