As volatility returns to mid- and small-cap (SMID) stocks after a sharp rally in recent years, new investment strategies are emerging to capture opportunities while managing risk. One such offering is the Altiva Equity Ex-Top 100 Long-Short Fund, positioned as a differentiated play on India’s SMID universe.

The fund focuses on stocks beyond the top 100 by market capitalisation, targeting a segment often seen as under-researched but rich in alpha opportunities. This “ex-top 100” approach allows the fund to tap into emerging businesses that have the potential to become future large caps, a trend supported by data showing consistent graduation of mid- and small-cap companies into higher market-cap brackets.

Key features

What makes the strategy particularly distinctive is its long-short framework. Unlike traditional mutual funds that rely solely on long positions, this fund uses derivatives to take both long and short exposures. This enables it to benefit not just from rising markets, but also from relative mispricing and downside opportunities, making it better suited for volatile conditions.

Another key feature is its high-conviction portfolio construction. The fund plans to hold just 35–45 stocks, significantly lower than the industry average of 60–80 stocks in mid- and small-cap funds. This concentrated approach is designed to focus on the best investment ideas, rather than spreading capital thinly across a large number of stocks.

The timing of the launch also appears aligned with market conditions. After a strong rally, SMID stocks have seen a broad-based correction, with a large proportion trading significantly below their recent highs. At the same time, valuations have moderated from peak levels, improving the risk-reward equation for investors.

Structurally, the fund is offered under the Specialised Investment Fund (SIF) framework, which combines elements of mutual funds and portfolio management services (PMS). This allows for greater flexibility in strategy execution, including the use of derivatives, while retaining regulatory oversight and relatively efficient taxation.

The broader investment case for SMIDs also remains intact. Data suggests that mid- and small-cap companies have historically delivered faster revenue and profit growth compared to large caps, supported by a larger runway for expansion and increasing participation from institutional investors.

Who should consider investing?

The fund is best suited for experienced investors with a high risk appetite who are comfortable with market volatility and complex strategies like long-short investing. It can appeal to those looking to:

Enhance portfolio returns through alpha generation
Gain targeted exposure to mid- and small-cap opportunities
Diversify beyond traditional long-only equity funds

However, it may not be ideal for conservative investors or those seeking stable, predictable returns, given the inherent volatility of SMIDs and the use of derivatives.

Takeaway

The Altiva Equity Ex-Top 100 Long-Short Fund positions itself as a next-generation SMID strategy, combining high-conviction investing with tactical flexibility. In a market where dispersion is rising and passive approaches may fall short, such strategies could offer investors a differentiated way to navigate opportunities—provided they are prepared for the risks involved.