Passive funds and specialised investing

Just as the stock market moves in cycles, businesses, themes, and investing strategies also exhibit cyclicality. If you can catch them, you may be in for a treat. But how do you target these cycles? Enter sectoral funds, thematic funds, and smart beta funds. Sectoral funds focus on specific sectors like IT, while thematic funds invest in overarching themes, such as manufacturing. Smart beta funds combine active and passive investing strategies, tracking an index like a passive fund and incorporating active investment attributes like momentum and quality. However, these specialised strategies carry risks. The fund manager could make wrong bets and the sector or trend could see a reversal in fortune. You could partially offset these risks through passive funds (subject to other risk factors). Passive funds simply track an underlying index and seek to generate returns as per that. You are not exposed to a fund manager's discretion anymore. Moreover, when the

This article was originally published on May 07, 2024.