Edelweiss MF’s Altiva Equity Long Short Fund to launch September 10; Bhavesh Jain explains largecap strategy

Edelweiss Mutual Fund is set to launch its third strategy under the Altiva Specialised Investment Fund (SIF) umbrella, with the Altiva Equity Long Short Fund opening for subscription on September 10. The fund aims to address the challenge of generating consistent alpha in large-cap investing.

According to Bhavesh Jain, Co-Head, Factor Investing, Edelweiss Mutual Fund, the new strategy seeks to address a common challenge faced by investors in large-cap funds.



Jain also said that the strategy will combine a core large-cap portfolio with an overlay of derivative strategies to seek additional alpha, rather than relying primarily on stock or sector selection.

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“You would have seen some of these strategies which we are already using in Altiva Hybrid Long Short Fund like Covered Call, Staddle, Stangle. We'll be using all of them over here also. The objective is very simple. We want to run a core large-cap portfolio with an overlay of these derivative strategies to generate that alpha,” Jain said.

The fund manager of Altiva Equity Long Short Fund noted that the first two Altiva products — the Altiva Hybrid Long Short Fund and Altiva Extraordinary Long Short Fund — have received a strong response in their initial months.

Altiva Equity Long Short Fund’s strategy

Jain said the new fund is designed to address the inconsistency of alpha that investors can face when investing in large-cap funds.

Large-cap stocks comprise some of the country's largest companies and have created significant wealth for investors over the years. Jain pointed out that nearly 15% of the mutual fund industry's total AUM, or around Rs 12 lakh crore, is invested in large-cap-related products.

However, generating alpha in the large-cap segment can be challenging because the universe consists of the top 100 companies by market capitalisation and large-cap funds are required to invest at least 80% of their assets in these stocks.

"These are well researched or well identified companies, so generating alpha in this is a real challenge," Jain said.

The fund manager said the Altiva Equity Long Short Fund will run a portfolio similar to a traditional large-cap fund, with around 80% invested in the top 100 market-cap companies and the remaining 20% in other stocks. The key difference will be the use of a derivatives overlay.

The strategy will use derivative strategies such as covered calls, straddles and strangles, which are also being used in Altiva's Hybrid Long Short Fund.

Jain said the strategy will not primarily attempt to outperform the benchmark by selecting a handful of stocks or making large sector bets. Instead, the portfolio will closely track the benchmark while using derivatives to seek additional alpha.

"It will be a very tightly hugging-a-benchmark kind of portfolio, but the alpha we want to generate will be using derivative strategies," Jain said.

He described the approach as a different way of generating alpha from a large-cap portfolio, where the focus is on the derivatives overlay rather than significant deviations from the benchmark through stock or sector selection.

Altiva Equity Long Short Fund

Altiva Equity Long Short Fund will be an open-ended equity investment strategy investing in listed equity and equity related instruments including limited short exposure in equity through derivatives instruments.

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The fund will open for subscription on September 10 and will close on September 24. The fund will be managed by Bharat Lahoti, Bhavesh Jain and Amit Vora.

According to Jain, Altiva expects the new product to receive a response similar to its first two offerings.

The fund will aim to generate alpha over Nifty 100 across cycles, with volatility comparable to other large-cap-oriented strategies. From this fund, investors can expect relatively consistent outperformance compared to traditional large cap strategies and lower drawdowns in sharp corrections; it may miss some upside during sharp market rallies, according to the fund presentation.

The minimum investment amount will be Rs 10 lakh. Existing Altiva SIF investors who have met the minimum threshold may invest Rs 1,000 and in multiples of Re 1 thereafter. Minimum investment in SIP, STP, SWP (subject to min investment of Rs 10 lakh) will be Rs 1,000 and in multiples of Re 1 thereafter.

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