The faster it goes...

Just a few months back, I wrote a sort of a mea culpa editorial in our stock investing magazine, 'Wealth Insight'. The cover story of that issue was on roughly the same topic as this one: Momentum investing. Except, of course, this one is about mutual funds that follow a momentum strategy.

In that editorial, I wrote, "Oldtimers who have followed Value Research for years or decades must be somewhat surprised at the topic of this month's cover story. There's no denying it - for long years, 'momentum' has been a dirty word in everything we publish and, certainly, in everything I write. In fact, if one classifies equity investing as being either fundamentals-driven or momentum-driven, then practically everything I write and say about investing is anti-momentum".

So, why are we doing this? Well, as Deng Xiaoping famously said, "It doesn't matter whether a cat is black or white, as long as it catches mice." He spoke these words in the context of the initial reform and opening-up of China's economy in the 1970s, but we'll apply it to investment styles!

While this new attention towards discussing momentum investing is a shift in our attitude, it is not a significant pivot from our long-standing investment philosophy. This change, however, does not signal a departure from our commitment to providing our readers with prudent investment advice. Instead, it reflects our recognition that the financial markets are dynamic, and so must be our strategies for navigating them.

By exploring the merits of momentum investing, we acknowledge that there is more than one path to investment success. Our goal remains to equip our readers with a diverse toolkit of investment strategies, enabling them to thrive in varying market conditions. This evolution in our editorial stance is a testament to our dedication to staying effective as Indian mutual funds evolve.

When it comes to investment, momentum implies that once an asset begins to accelerate, it's likely to continue gaining speed and possibly even accelerate further. Prices usually maintain their current trajectory for some time across all types of markets (not limited to the stock market). Without any insight into the future reasons for price movements of assets like stocks, wheat, gold or potatoes, the best assumption is that they will persist in their present direction. Thus, if price is the only factor you're aware of and comprehend, then it should be the sole basis for your investment decisions.

However, there's a lot more when it comes specifically to momentum funds. Our cover story of 'Mutual Fund Insight' April 2024 issue discusses the concept of momentum funds in investing, focusing on their performance, strategies and the principles behind them. Investors should pay attention to the impressive performance of the Nifty 200 Momentum 30 TRI, which seems to defy the conventional wisdom that larger companies grow slower by outperforming even the small-cap index. Of course, nothing is without risk. Awareness of the risks associated with momentum investing and the role of mutual funds in mitigating these risks is a must.

I must point out that a large part of the public investment conversation tends to present any idea as the 'be-all' and 'end-all' of making money. That's dangerous, especially in a trend-following activity like momentum investing. That's not the goal of our cover story. It's essential to bear in mind that while momentum investing through mutual funds has the potential for significant gains, it also necessitates a sophisticated approach to navigating the risks inherent in this strategy.

Our discussion on momentum funds is designed not merely to spotlight their potential and weigh both the pluses and the minuses.

It's just another tool in your money-making toolbox. No matter how strongly our story convinces you of the awesomeness of momentum investing, it cannot be the central theme of anyone's mutual fund portfolio.