10 Thematic Mutual Funds that Turned Out to be Laggards in the Market Correction

Out of the 85 schemes considered, 45 schemes registered a negative return of 20% or more in the last 5 months. The bottom-performing scheme lost 29.4%, while the top performing scheme lost about 6% during this period; the Nifty 500 - TRI index fell 17.8% over the same period.

It is worth noting that a majority of these schemes were launched during the stellar market rally of 2023-24 to capitalise on the highly buoyant investor sentiments.

Read on to know about the schemes that turned out to be laggards in the Thematic Fund category amid the recent market correction:

#1 Samco Special Opportunities Fund

Samco Special Opportunities Fund invests in a portfolio of securities that are involved in special situations such as restructurings, mergers & acquisitions, new & emerging sectors, etc. that can create mispricing and undervalued opportunities. The fund offered a negative return of 29.4% in the last 5 months.

#2 Quant PSU Fund

Quant PSU Fund invests predominantly in equities of Public Sector Undertakings (PSUs) i.e. companies in which central or state governments hold a majority stake. The fund lost 28% in the last 5 months.

#3 Quant Business Cycle Fund

Quant Business Cycle Fund invests aims to ride business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy. The fund's NAV dropped 27.2% in the last 5 months.

#4 Quant Manufacturing Fund

Quant Manufacturing Fund primarily invests in companies engaged in manufacturing activities. The fund returned negative 27.1% in the last 5 months.

#5 Invesco India PSU Equity Fund

Invesco India PSU Equity Fund invests in companies where central/state governments have majority shareholding or management control, or have powers to appoint majority of directors. The fund delivered -26.1% in the last 5 months.

#6 Aditya Birla SL Transportation and Logistics Fund

Aditya Birla SL Transportation and Logistics Fund looks to capitalise on the opportunities available in the fast-growing transportation and logistics segment. The fund lost around 26% in the last 5 months.

#7 Edelweiss Business Cycle Fund

Edelweiss Business Cycle Fund seeks to dynamically allocate between various sectors and capture business cycle trends by utilising a factor-based investment approach. The fund generated -26% returns in the last 5 months.

#8 Motilal Oswal Quant Fund

Motilal Oswal Quant Fund aims to invest in equities selected based on the fund house's proprietary quantitative investment framework. The fund has registered a negative return of 25.5% in the last 5 months.

#9 Quant Commodities Fund

Quant Commodities Fund aims to create a portfolio that is invested predominantly in companies classified under commodities, energy, and utilities. The fund has lost 25.2% in the last 5 months.

#10 HDFC Defence Fund

HDFC Defence Fund focuses on stocks from Defence and allied sectors investing in companies that obtain at least 10% of revenues from defence segment (aerospace, explosives, ship building & allied services). The fund delivered negative returns of 24.9% in the last 5 months.

To conclude:

Thematic Funds have high return potential due to the concentration of the portfolio towards a set of stocks that are expected to do well. However, it is important to note that no particular theme can turn out to be a multibagger year after year. Each theme undergoes cycles of outperformance and underperformance depending on the behaviour of the underlying drivers of growth such as government policies, demand conditions, input prices, etc.

Due to the concentrated nature of a Thematic Fund's portfolio, the downside risk can be relatively high during uncertain and highly volatile market conditions.

So, while Thematic Funds may continue to deliver positive results over the long run, it will not be without risks.

Thematic Funds are high risk - high returns investment propositions making them suitable only for aggressive investors. Remember that returns in Thematic Funds can swing from thrilling highs to dangerous lows. This highlights that one should avoid the mistake of investing in a Thematic Fund simply because it had a great run in the recent past.

Only those investors who are confident of the growth prospects of a particular theme and are well aware of the risks involved may consider investing some portion in them, ideally limiting the overall allocation in the category to under 15% of the equity portfolio.

Watch this video to find out what drive the rally in Thematic Funds in recent years and whether they are worth considering for investments:

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.