Just a few months back, the automobile industry was under stress due to the shortage of semi-conductors. Before that, when the spread of Covid-19 was at its peak, real estate was underperforming and it was evident in the stock prices of realty companies too.
All these are just a few examples of how changing situations can have a sharp positive or negative effect on specific sectors. Accordingly, it makes sense to take advantage of these conditions. For instance, investing wisdom suggests buying when a particular sector, which is usually cyclical, is under stress.
However, in reality, it is not so simple. After all, how does a retail investor, with limited time and energy at their disposal, figure out which special situation they can take advantage of. Even if someone tries to get to the bottom of the story, by then, the event passes by. In other words, you need foresight and expertise to utilize the investment opportunities arising out of such circumstances.
Investment options to capture special situations
Within thematic fund universe, several fund houses offer special situation theme based offerings. Special situations here could mean events like geo-political or socio-economical events, corporate restructuring, government policy or regulatory changes, or even temporary unique challenges that specific companies or sectors could face.
Essentially, the fund managers of these schemes maintain a 360-degree lookout for opportunities where they believe that the buying price for the stocks of a company is much lower than what the actual value should be. This temporarily depressed value could be on account of any of the reasons highlighted above.
This also makes these funds to have some-what concentrated portfolios, despite they being an open-ended equity scheme. At the same time, these funds try and maintain a diversified portfolio.
Among the offerings available in this space, the Indian Opportunities Fund from ICICI Prudential Mutual Fund ticks all the right boxes. Since its inception, this scheme has given a return of 22.8% compared to 17.7% for its benchmark Nifty 500. Even in 1-year, 3-year and 5-year periods, the scheme has outperformed the benchmark by several percentage points.