Most category III alternative investment funds (AIFs) have outperformed the benchmark Nifty50 in the month of August.

Long-only funds gave average category returns of 2.3 per cent while long short funds returned 0.14 per cent on average, the data from PMS Bazaar for category III AIFs showed. The Nifty fell 2.5 per cent during the month.

Of the 61 long-only funds, 51 funds gave positive returns and 13 schemes gained more than 5 per cent. Twelve out of 20 long-short funds ended in the green.

Prudent Equity Ace Fund was the best performer in August, with returns of 9.7 per cent. First Water Capital Fund was the second best performer with returns of 6.93 per cent, followed by Samvitti Capital’s Alpha Fund, which returned 6.9 per cent.

For the one-year period, Aequitas Equity Scheme I was the best performer with returns of 70.2 per cent. Abakkus Asset Manager’s Emerging Opportunities Fund I and Emkay Emerging Stars Fund 4 were the other two top performers for the one-year period, with gains of 45.1 and 36.5 per cent, respectively.

Among the long-short funds, Pluswealth Assets was the top performer in August with returns of 2.14 per cent. The scheme has also topped the charts for a one-year period with returns of 21.6 per cent.

The broader markets- S&P BSE Midcap and S&P BSE 250 SmallCap were up 2.6 per cent and 4.5 per cent, respectively in August. Foreign portfolio investors invested $1.48 billion during the month while domestic institutional flows were positive to the tune of $3 billion. Among sectors, consumer durables (4.2 per cent), IT (2.7 per cent) and capital goods (2.7 per cent) gained the most, while oil and gas (5 per cent), banks (4 per cent) and FMCG (2.7 per cent) declined the most.

“While the headline markets have taken a breather, mid-cap and small-cap rally has continued unabated in August. We have seen strong equity supply coming in via PE exits and IPOs,” said Sunil Singhania, founder, Abakkus Asset Manager, in a recent note to investors.

Demand growth

The Nifty 50 has seen decent earnings upgrades for FY24 and FY25, bringing the index price to earnings multiples for FY25 to slightly over the 10-year average, he said. The festive season is poised to bring in demand growth on the consumption side even as spending on infrastructure and capital expenditure continues to gain traction, said Singhania.

“Monsoons have been dismal for the month of August, though normalcy is expected in the weeks to come. Higher crude prices also need to be heeded. More concerning is the momentum in theme-based and FOMO-based (fear of missing out) investing,” he said.

A long-only fund takes only long positions. A long-short fund takes both long and short positions in the market and use several alternative investing techniques such as leverage, derivatives, and short positions to purchase relatively undervalued securities and sell overvalued ones.