Aiming to surf larger waves? Make market momentum work for you! Listen to Hari and Karthik discuss how you can leverage momentum investing, a time-proven strategy in this episode.
[00:00:00] Welcome to Axis Moneynomics by Axis Mutual Fund
[00:00:03] Have you ever joined a trend because everyone around you was excited about it?
[00:00:08] Maybe it was a new restaurant everyone was talking about or a show that everyone was binge watching.
[00:00:14] When people are buzzing about something, there's this energy of momentum that sort of pulls other in, right?
[00:00:21] Well, in the world of investing, momentum investing works in a similar way.
[00:00:27] It's about finding stocks that are in motion, stocks that are gaining popularity and performing well and riding that wave.
[00:00:36] Today, we are going to break it down with our special guest, Karthik Kumar who is a fund manager at Axis Mutual Fund.
[00:00:54] Hello and welcome to yet another exciting episode of Axis Moneynomics.
[00:01:00] This is Harit from Axis Mutual Fund.
[00:01:03] Hi Karthik, welcome to the show.
[00:01:06] Hey Harit, thanks for having me here.
[00:01:08] Karthik, we have all been talking about momentum investing.
[00:01:12] For the benefit of our investors and listeners, could you start with the basics?
[00:01:16] What exactly is momentum investing?
[00:01:19] So imagine you're surfing, right?
[00:01:21] A surfer scans the waves, watching for the strongest one and then tries to ride it as far as possible.
[00:01:28] Momentum investing works a bit like that.
[00:01:31] The idea is to catch stocks that are already on an upswing and then ride that momentum.
[00:01:37] And just like a surfer needs timing to catch the perfect wave, momentum investors look for stocks that are already on an upward trajectory.
[00:01:46] The goal here is to buy these stocks as they gather momentum, ideally before anybody else jumps in them.
[00:01:53] It's all about identifying which stocks are in motion and riding that trend to potentially make gains.
[00:02:01] Alright, so it's really about finding the stocks that are already doing well and they have the potential to keep going up.
[00:02:07] Is my understanding correct?
[00:02:09] That is perfect.
[00:02:10] Momentum investing is based on the idea that stocks with recent price performance tend to keep performing well for a while.
[00:02:19] And that stocks that are underperforming tend to continue lagging broader markets.
[00:02:24] This is the root of momentum investing.
[00:02:29] A noble laureate has called momentum investing one of the strongest anomalies in finance.
[00:02:34] In fact, momentum investing performs across asset classes, effects, commodities and it does extremely well across job reviews.
[00:02:44] But tell me, Karthik, how does this sort of work in real practice?
[00:02:48] I mean, if we were to just look at stocks that are already moving up, what makes this different from just following the crowd?
[00:02:56] Well, momentum investing is much more structured than simply following the crowd.
[00:03:03] Its strategy is based on careful analysis and ensuring that not only you have an uptrend, but the uptrend is established and fairly reliable.
[00:03:11] I get it.
[00:03:13] I am also keeping to understand, Karthik, that momentum investing is adaptable.
[00:03:18] Just like a cricket team, it sort of changes its team composition based on the market, the pitch conditions and all.
[00:03:25] Momentum investing also adjusts the portfolio based on market trends.
[00:03:31] Is it correct?
[00:03:32] That's a great analogy.
[00:03:33] Think of it as bringing the best players for the current market conditions.
[00:03:37] For example, if large cap stocks are gaining momentum, they might dominate your portfolio.
[00:03:43] But if the trends shift to small cap, the strategy adapts.
[00:03:48] So just like a cricket team making strategic adjustments during a game, a momentum strategy adjusts to the market's pitch and conditions, switching up sectors, styles and the stocks to stay in line with strongest performance.
[00:04:01] That makes sense, Karthik.
[00:04:04] But do also tell us what are the potential benefits of this strategy.
[00:04:08] I mean, the two key things that I'd like to highlight is first is adaptability.
[00:04:13] Momentum investing naturally adjusts to changing trends, whether large cap or small cap, growth or value, high beta or low beta.
[00:04:22] The strategy flexibly aligns with whichever stocks are gaining strength or have been doing well, providing exposure to the strongest sectors and styles at that point in time.
[00:04:33] Second is the behavioral advantage.
[00:04:35] The strategy leverages on behavioral financial principles.
[00:04:40] Investors tend to overreact to good news and underreact to bad news, which creates inefficiencies.
[00:04:46] Momentum strategies capitalize on these biases by catching these trends early, hopefully before others completely respond.
[00:04:54] That sounds interesting, Karthik, but whatever you have told so far, somehow it gives me a feeling that momentum investing will tend to do well when the markets have very strong trends.
[00:05:05] But what would happen if there's a downturn? How does this strategy sort of hold up?
[00:05:10] That's a great question, Hari. Momentum strategies tend to perform in trending markets, but even in downturns, they can adjust.
[00:05:19] These funds are rebalanced frequently, meaning they can still get out of stocks that are starting to lose momentum.
[00:05:27] So while no strategy is completely immune to market volatility and market cycles, this active management approach helps limit the downside by staying agile in those uncertain times.
[00:05:38] That makes a lot of sense, Karthik. And in fact, speaking of funds, I would like to introduce our listeners to our new fund offering, the Access Momentum Fund.
[00:05:48] The Access Momentum Fund is designed to make momentum investing easy for investors.
[00:05:54] Well, Hari, I would like to add one more point in here. Access Momentum Fund is also actively managed.
[00:05:59] This means that the fund can be designed, tailored according to our requirements and hence the fund can respond quickly to changes in the markets adjusting the portfolio as new trends emerge.
[00:06:13] The fund, in fact, follows a rule-based approach where stocks are evaluated on various parameters such as recent price trends and returns across time horizons.
[00:06:24] Only stocks with the strongest momentum make it to the portfolio. And this portfolio then is actually rebalanced regularly to stay aligned with the strongest trends.
[00:06:35] In fact, investors get exposure to a mix of large, mid and small cap stocks allowing it to capture opportunities across the market depending on which segments are trending at any given point of time.
[00:06:48] So the NFO is a great chance for investors to get in early. For anyone interested in momentum investing, the Access Momentum Fund offers a convenient radar driven way to leverage this strategy.
[00:07:01] Absolutely, Karthik. Thank you so much. And with that, we come to the end of today's episode. It has been a quite insightful session, Karthik. Thank you so much once again.
[00:07:12] Thanks for having me, Hari. It's been a pleasure.
[00:07:14] Thank you, Hari.
[00:07:15] For our listeners, if you are looking to ride the market's strongest trends, you could consider the Access Momentum Fund. Investors should note that their principal will be at a very high risk. You must always consult with a financial advisor before making any investment decision.
[00:07:32] And that's a wrap for today. If you found this episode valuable, make sure to follow Access Moneynomics. Do share this episode with your friends and family to help them in making their investment journey easier.
[00:07:47] Investors should note that their principal will be at a very high risk. Mutual fund investments are subject to market risk. Read all scheme related documents carefully.
[00:07:57] Until next time, this is your host, Havi, signing off.