Optimizing performance across market cycles through long short strategy

WSIF Equity Long Short Fund:

The WSIF offered by Wealth Company MF has launched a Specialized Investment Fund (SIF), WSIF Equity Long Short Fund. SIFs are a new type of investment product.

What is Equity Long-Short Fund?

As per SEBI guidelines on categories of investment strategies, equity long short funds, an equity oriented investment strategy is allowed to take short positions in equity and equity related instruments within specified limits with net short exposure up to 25% of AUM. A regular equity mutual fund scheme can only go long. This means that they may perform when the stocks they hold, rise. An equity long-short SIF may perform from falling stocks by taking short positions through exchange-traded futures and options. Under SEBI's framework, the Equity Long-Short SIF must maintain a minimum of 80% in equity and equity-related instruments Unhedged short exposure via unhedged derivatives in equity and equity related instruments is capped at 25% of net assets. There is no mandatory debt allocation. This is a pure equity strategy. The Equity Long-Short Fund has flexibility to invest across large, mid, and small caps.

Why should investors choose Long Short Funds?

1. Potential to participate in All Market cycles: They may potentially perform in both rising and falling markets by taking long positions in undervalued stocks and short positions in overvalued ones.


2. Aim for Reduced Beta and volatility at Portfolio level: By balancing long and short positions, long short funds may potentially have a lower correlation to the overall market along with lower volatility at portfolio level.


3. Flexibility and Tactical Allocation: Managers may have more flexibility to adjust exposures and respond to changing market conditions, sectors, or valuations.


4. Potential for wealth creation through shorting: Shorting overvalued stocks may add incremental value that long-only strategies may miss out on, potentially boosting long term wealth creation.


5. Risk-Adjusted Returns: The ability to hedge risks and capture value creation from both sides may potentially improve the fund’s Sharpe ratio and risk-adjusted performance.


6. Diversification Benefits: Including short positions may provide additional sources of diversification within the portfolio.


7. Ability to Express Negative Views: Managers may express negative views on sectors, industries, or stocks directly through shorting, not just by avoiding them.

About WSIF Equity Long Short Fund

The WSIF Equity Long short Fund aims to generate long-term capital appreciation by investing in a diversified portfolio of equity and equity-related instruments while utilizing limited short exposure through derivatives. The benchmark of the fund is NIFTY 500 Total Return Index (TRI).

Investment Framework of WSIF Equity Long Short Fund

The fund will have a data driven stock screening approach with aim to build a high quality investment universe.

The fund’s proprietary framework for investment - the QUBOID, is created using following parameters-

• Quantitative Valuations (Q): Aim to create a high-quality investible universe using financial models
  
  

  



• Underlying Growth Vectors/ Megatrends(U): Attempt to look for long term trends.
  
  

  



• Behavioural and Probabilistic Investing (B): A disciplined approach that may explicitly incorporates uncertainty and range of possibilities into investment decisions. (See fig below)


• Orthogonal Factors (O):
  
  

  



• Investment Hypothesis (I): Aim for Optimum period of holding to maximize returns and minimize opportunity loss. Aim for Optimum Diversification across Style factors and size to minimize risk. Quantify the returns and risks involved with focus on
  
  
  • Quantification of Returns and Risk
  
  
  • Investment time Horizon - Medium Term, Short Term, Long Term
  
  
  • Style Factors - Quality, Growth, Momentum, Contra, Value
  
  
  • Liquidity scenario analysis and its effect
  
  
  • Market cap segment
  
  
  • Sectoral exposure


• Drawdown & Risk Management (D):
  
  

  

Typical Portfolio Stocks

In addition to carefully selecting stocks, the fund managers also attempt to avoid bubbles in pockets of the market based on the below considerations.

1. Excessive Price Valuations: High percentile PE ratios and low earnings yield compared to bond yields, and sector specific froth


2. Speculative Behavior and Retail Mania: Surge in Retail Trading, Social Media Hype, High Options Activity and High percentile Increase in leverage and margin funding


3. Prolonged Loose monetary conditions: Excess liquidity and low interest rates, Higher debt to GDP


4. Market Concentration: Narrow Leadership and Dominance of Few Stocks and sectors


5. Euphoria and Narrative-Driven Investing: Irrational Exuberance, FOMO, Corporate Hype


6. Technical and Sentiment Indicators: Overbought Conditions, High Volatility Skew, Extreme Investor Sentiment

The parameters used by the fund managers to detect market bubbles are as follows.

The above is the framework currently adopted by the Scheme and is subject to change in accordance with the provisions of the SID & depending on the market conditions.

Why invest in WSIF Equity Long - Short Fund?

• Diversified equity allocations: Equity allocations between different sectors and market capitalization (large, mid and small caps) will be dynamically adjusted based on market conditions with certain short positions placed with aim to benefit from naked short positions.


• Comprehensive Approach: An investment approach that combines market trends and individual stock analysis to guide long and short positions.


• Institutional Risk Framework: Continuous monitoring for liquidity, diversification, and transparency, ensuring robust portfolio governance.


• Dynamic Equity Exposure: Calibrated overall market exposure based on changing macro conditions, liquidity trends, and business developments.

Who should invest in WSIF Equity Long - Short Fund?

• High Net Worth Individuals (HNIs): Investors seeking more advanced strategies than mutual funds but without the high entry barrier of PMS or AIFs.


• Sophisticated Investors with good understanding of financial markets and seeking exposure to long-short equity strategies with a minimum investment of Rs 10 lakh


• Investors with high-risk appetite and who understands market volatility.

Investors should consult with their financial advisors and eligible mutual fund distributors if WSIF Equity Long - Short Fund is suitable for their investment needs.

(An open ended equity investment strategy investing in listed equity and equity related instruments including limited short exposure in equity through derivative instruments.)

*The Risk Band is as per ISID.

Product labelling assigned during the New Fund Offer (NFO) is based on internal assessment of the investment strategy characteristics or model portfolio and the same may vary post NFO when the actual investments are made.

"Investments in Specialized Investment Fund involves relatively higher risk including potential loss of capital, liquidity risk and market volatility. Please read all investment strategy related documents carefully before making the investment decision."