Short Description: A pure index fund has smashed its benchmark, doubling returns with a focused bet on value sectors—but is its high-risk, concentrated strategy right for your portfolio?
Read Time: 3 minutes
Main Article
The recent bull run in Indian equities has been marked by a decisive shift from growth to value, and one passively managed fund has ridden this sectoral tailwind to staggering outperformance. The Motilal Oswal BSE Enhanced Value Index Fund has delivered a remarkable three-year compound annual growth rate (CAGR) of 30.71%, more than doubling the returns of its benchmark. This standout performance from an index fund—a vehicle designed for passive tracking—highlights a powerful value investing trend concentrated in banking, energy, and materials. The fund’s success is intrinsically linked to the robust re-rating of Public Sector Undertaking (PSU) stocks, which form the core of its high-conviction portfolio.
However, this exceptional alpha comes with a ‘Very High’ risk rating. The portfolio is heavily concentrated, with over 80% of assets in financials and energy/utilities, leading to elevated volatility metrics. This intense sector focus means the fund’s fortunes are tightly coupled with the cyclical performance of PSU banks and state-owned energy giants. While its risk-adjusted returns remain strong, this strategy is not for the faint-hearted. It is best suited for investors with a high-risk tolerance and a long-term horizon who understand that value strategies can face extended periods of underperformance when market sentiment shifts.
The fund’s story underscores a critical lesson for investors: passive funds can deviate dramatically from broad market returns when they track a narrowly focused, thematic index. As competitor PSU funds also show strong long-term gains but short-term volatility, investors must align such sector-specific investments with their overall asset allocation and risk capacity. The current macro environment in India, with strong GDP and banking sector growth, may continue to support these value segments, but the inherent cyclicality demands a strategic, patient approach.
Short Summary
The Motilal Oswal BSE Enhanced Value Index Fund’s stellar returns demonstrate the power of a concentrated, passive bet on the value and PSU stock rally. While its high-risk, sector-specific strategy has outperformed dramatically, investors must carefully assess its volatility and cyclical nature against their long-term financial goals and risk appetite before considering investment.
