According to the report, more than 40% of the assets under management (AUM) of funds covered by CRISP show a strong inclination towards value investing. In contrast, around 27% of AUM is invested in funds without a notable style bias, and about 22% is in funds tilted towards quality. Momentum, despite being the second most prominent style among high-performing funds, accounts for only 14% of investor assets.
“The higher allocation to funds with value investment style could be due to their strong performance in recent years, which is also reflected in CRISP performance consistency scores of such funds,” the report notes.
However, although they exhibit high performance consistency, momentum-focussed funds struggle to attract investor capital. The CRISP analysis indicates that large-sized funds struggle to frequently change their portfolios, which is crucial in a momentum strategy. As a result, most momentum-heavy funds are run by mid-sized and small AMCs such as Edelweiss, Motilal Oswal, JM, and Bank of India.
This lack of style diversification means portfolios could still be exposed to concentration risks, even if investors invest their money across multiple fund houses and categories. According to the report, having funds from multiple categories and AMCs doesn’t guarantee protection from concentration risk if those funds follow the same investment style or strategy.
Instead, the CRISP report suggests that investors actively spread their funds across different investment styles to create portfolios that are robust in a range of market conditions.
The report also highlights that investors continue to prioritise performance over building a truly balanced portfolio. “Overall, based on this analysis, it appears that investors’ choices are driven by performance rather than the need to achieve style diversification in their portfolios,” the report concludes.
While the report helps investors analyse their investments based on different styles, it also emphasises the importance of other qualitative factors, such as the strength, track record, and stability of the investment team managing the fund as well as the fund size and related constraints. “Moreover, investors need to consider their investment horizon, risk appetite, and personal financial circumstances before making any investment decisions,” the report adds.