Have business cycle funds found their rhythm?

Summary: A hot new category with Rs 41,000 crore behind it, but is the idea actually different? Before you buy into the “cycle-timing” pitch, see how these funds compare with flexi-caps and multi-caps from the same fund houses. The past five years have seen a spate of new fund launches. With SEBI allowing only one fund per mainstream category, fund houses have turned to newer, unconventional ideas. Business cycle funds are one such creation. Currently, there are 18 such funds, managing a combined Rs 41,006 crore in assets. Of the 18, 12 funds are yet to complete their third year. A business cycle fund’s idea is attractive. Since different sectors perform better in different phases of this cycle, these funds shift their investments depending on where the economy is headed. For instance, during a slowdown, they may prefer defensive sectors like FMCG and pharma, while in a recovery or expansion phase, they might tilt towards cyclicals like banking, capital goods or autos. Essentially, the fund manager adjusts their position to stay ahead of the curve. But are they truly a novel idea? Their sectoral composition suggests not. They are pretty similar to fl