Speed is always welcome, especially, when driven in a particular direction. Stock market investors also look forward to growing their money at incredible speed, albeit with fund managers’ expertise and experience. This explains the increasing affinity for momentum investing as opposed to plain, old, vanilla index funds that trigger returns only when the market is experiencing a bull run.
Momentum investing is not new in India. Over a span of 18 years, the Nifty 200 Momentum 30 index demonstrated an impressive compound annual growth rate (CAGR) of 17.79 per cent, surpassing the performance of both the broader Nifty 50 and Nifty 500 indices.
Additionally, the Nifty Midcap 150 Momentum 50 index achieved a remarkable CAGR of 21.28 per cent since its establishment. Furthermore, the MSCI World Momentum Index yielded an impressive 20x return, outperforming the MSCI World Index's 10x returns, showcasing its commendable performance.
Momentum funds have been in vogue though most of them are passive funds. Samco Mutual Fund claims to be the first mutual fund house to have launched the Samco Active Momentum Fund, an actively managed momentum fund that seeks to generate long-term capital appreciation by investing in stocks showing strong momentum. This fund is designed to leverage price momentum as its strategy. It focuses on capitalizing on stocks that are currently trending and have a momentum that tends to exceed the performance of the broader market.
Viraj Gandhi, CEO, Samco Asset Management said, “We are excited to introduce SAMCO Active Momentum Fund as India’s first actively managed momentum fund and this represents an exciting step forward for the Indian investment landscape. We believe this fund will open new avenues for investors seeking to benefit from momentum investing. With our dedicated team and a robust investment strategy, we are confident in delivering value to our investors.”
Should you invest in this fund?
No doubt, the performance of momentum investing has been consistently remarkable over the years, as evidenced by the impressive results of momentum indices.
Viral Bhatt, Founder, Money Mantra said, “Momentum investing has shown impressive performance over the years, but it is important to note that past performance is not indicative of future results. There is no guarantee that an actively managed momentum fund will continue to outperform the market. There are a few reasons why someone might choose to invest in an actively managed momentum fund. First, active managers may be able to identify stocks that are poised to continue their momentum, while passive momentum funds may simply track a momentum index."
"Second, active managers may be able to adjust their portfolios more quickly than passive funds, which can be important in a rapidly changing market. However, there are also some risks associated with investing in an actively managed momentum fund. First, active fund managers may charge higher fees than passive funds. Second, active managers may not be able to consistently outperform the market. Third, active managers may make mistakes that can lead to losses,” added Bhatt
The new fund offer (NFO) looks promising considering how fund managers would assess stocks with momentum traits using a selective algorithm. While the intention to outperform the market by capitalizing on prevailing price trends can be enticing, it is important to acknowledge that this approach carries inherent risks.
Should investors then put their hard-earned money in this NFO?
The fund investment, fraught with inherent risks, may be worth the ride but is surely not for the faint-hearted. There are aspects that investors dare not ignore. To start with, it is a new fund launch, which means that the investors have no way to evaluate how the fund managers would perform in different market cycles. Also, as personal finance experts advise one and all to stay away from NFOs and invest in tried and tested funds that have survived the test of time and various market upheavals.