Active Momentum Funds Timing the Market or Tapping the Trend?

Abhishek Wani evaluates whether India’s active momentum funds are skillfully timing markets or simply riding trends. By dissecting strategies of Samco and Quant, he scrutinizes the fine line between tactical rotation and disciplined trend-following in a volatile momentum investing landscape [EasyDNNnews:PaidContentStart]

Momentum investing has attracted growing interest from investors in recent years, especially during strong bull markets when stock prices seemed to move only in one direction, up. But the real question is: does this approach involve skillfully timing the market, or simply riding established trends? And perhaps more importantly, how does the strategy hold up when markets reverse course? 

At its core, momentum investing is built on a straightforward idea: stocks that have been rising are likely to continue rising in the near future, while those that are falling tend to keep falling, at least for a while. Instead of searching for undervalued stocks, momentum investors look for those already showing strong recent performance and try to ride the wave. When this works, the rewards can be impressive. This is why actively managed momentum funds, which aim to identify such winners using technical models and market signals, have become increasingly popular. 

But as every seasoned investor knows, markets are unpredictable and can turn sharply. Between September 2024 and April 2025, the Indian market underwent a steep correction. Investors who had earlier enjoyed fast gains with momentum funds found themselves facing significant losses. These funds, once the stars of a rising market, became some of the worst performers during the downturn. The same trendchasing approach that delivered outsized returns in good times became a liability when sentiment shifted. This is the doubleedged sword of momentum investing; its success is tightly linked to prevailing market trends, and its weakness is exposed when those trends break. 

What is momentum investing, really?
Put simply, momentum investing is the strategy of buying stocks that are going up and selling those that are going down. It doesn’t rely on valuations or business fundamentals alone. Instead, it uses recent price behaviour, typically over 3, 6, or 12 months as a signal to make investment decisions. This style of investing is supported by decades of empirical data and behavioural finance research. One widely accepted theory suggests that investors tend to chase recent winners, creating self-reinforcing price momentum. 

Active momentum mutual funds take this approach a step further. These are managed by professionals who use sophisticated models to select stocks based on recent price performance. Unlike passive momentum index funds, which follow a fixed set of rules, active funds allow the manager to adjust, rebalance frequently, or even rotate sectors as needed. Some also use advanced tools like short-selling or risk filters to adapt the portfolio to changing market conditions. 

The advantage of momentum strategies is their potential to generate high short- to medium-term returns. The data backs this up. Over the six-month period ending September 26, 2024, the NIFTY 200 Momentum 30 Index delivered a strong 24.42 per cent return, far outpacing the NIFTY 50, which returned 18.50 per cent in the same time frame. Even over a longer horizon, the strategy remains compelling. Over the three-year period ending the same date, the Momentum 30 Index delivered an annualised return of 30.23 per cent, compared to 15.61 per cent from the NIFTY 50. 

Beyond potential returns, active momentum funds offer professional management. Fund managers rely on a blend of analytics, technical indicators, and market insights, something individual investors may struggle to do consistently on their own. These funds also tend to offer diversification by investing across sectors, helping reduce stock-specific risks. And because decisions are often driven by quantitative models, momentum investing helps strip out emotional biases from the process. 

But there’s a flip side...
While the upside of momentum investing can be lucrative, the downside can be swift and unforgiving. Momentum strategies are highly sensitive to trend reversals. When markets turn volatile or uncertain, stocks that have seen the sharpest rallies are often the first to correct, sometimes violently. These strategies also involve frequent portfolio churn, which means higher transaction costs. And perhaps the biggest risk is getting caught on the wrong side of a trend due to mistimed decisions or false signals. 

History shows that momentum investing comes with boomand-bust cycles. Periods of outperformance are often followed by painful drawdowns. Some of the most notable crashes for momentum portfolios happened in 2001, 2009, and more recently in 2023. In 2009, momentum strategies witnessed a steep 70 per cent+ drawdown, highlighting their fragility during sudden market shifts. 

The recent market downturn is a case in point. Between September 27, 2024, and April 7, 2025, the NIFTY 50 declined by 15.35 per cent, but the NIFTY 200 Momentum 30 Index fell by a much sharper 31.79 per cent. This highlights how momentum funds, often overweight on recent winners, can see deeper corrections when sentiment sours. 

Chart: NIFTY 50 Vs NIFTY 200 Momentum 30 Index in Bull and Bear Scenario in recent period
Bull Period (March 27, 2024, to September 26, 2024)

Bear Period (September 27, 2024, to April 7, 2025)

Why investors still stay invested in momentum Despite the risks, experts believe that rough patches are part of the journey. Momentum, like all investment styles, works best when followed consistently over the long term. The idea is not to guess market bottoms or tops, but to participate in clear, sustained trends. The current correction, they say, could actually be a healthy reset, clearing froth and resetting expectations. 

Trying to 'time' momentum is often counterproductive. If you exit too early, you risk missing the start of a new trend. And entering too soon can mean more pain if the correction continues. The key is discipline, not precision. As one manager puts it, 'We don’t mind missing the first bounce from the bottom or shaving some returns at the top. We wait for a clear trend and then ride it.' 

It’s also worth noting that not all momentum strategies are created equal. Performance can vary depending on how the fund defines momentum, how frequently it rebalances, whether it uses filters like sector caps or valuation thresholds, and the look-back period used to evaluate stock trends. For example, the NIFTY 200 Momentum 30 Index focuses on 6- to 12-month performance and does not apply sector constraints, allowing it to fully chase trends but also increasing the risk of concentration. 

Timing vs Trend-Following: What’s the Fund Manager Really Doing? Momentum investing may appear straightforward on the surface—buy what’s rising and sell what’s falling—but a deeper look into how fund managers implement it reveals a more complex reality. Are these managers actually trying to predict short-term market moves, or are they simply riding existing price trends with discipline? This is a crucial distinction because the success and risk of active momentum funds depend on where they fall along this spectrum. In practice, most active momentum funds blend both approaches. 

Market Timing in Action Some active funds lean more into the timing side of the spectrum. They use a host of technical indicators like RSI (Relative Strength Index, a momentum oscillator), MACD (a trend-following momentum indicator), and ADX (Average Directional Index, measuring trend strength) to identify signals that a stock is gaining or losing momentum. For example, a fund might enter a position when RSI moves above 50 and exit when it crosses 80, indicating overbought territory. These techniques require frequent monitoring, fast execution, and, inevitably, carry the risk of reacting to false signals or shortlived moves, commonly known as 'whipsaws.' 

The essence of market timing is anticipation. But anticipation isn’t always reliable, especially in choppy or unpredictable markets. For investors, this means higher volatility and the potential for missteps. 

Trend-Following in Action Other funds are more aligned with trend-following principles. They invest in stocks that have already demonstrated strong upward price movement over a defined period, often 3, 6, or 12 months, and hold them as long as the trend remains intact. The thinking is simple: the market is already voting with its feet, and these securities are showing strength for a reason. There’s no need to predict exactly when the party ends—just leave when the signs turn. 

Behavioural finance lends support here. Research shows that investors often underreact to new information, allowing winners to keep winning for a while. Trend-following funds aim to capture this inertia by rebalancing periodically, typically monthly or quarterly, to stay exposed to top performers while exiting laggards. 

So, Which Camp Are Active Momentum Funds Really In? To answer that, let’s look at how two prominent funds (having Asset Under Management above `500 crore in the category), Samco Active Momentum Fund and Quant Momentum Fund, position themselves through their investment process and public commentaries. Before that, let’s understand fund philosophy through fund managers’ statements by comparing Samco Mutual Fund—led by CIO Umesh Kumar Mehta—with Quant Mutual Fund. Samco Mutual Fund, under CIO Umesh Kumar Mehta, demonstrates a clear commitment to systematic trend-following. The fund’s strategy revolves around identifying stocks with sustained upward momentum, not short-term speculative trades. Mehta emphasizes holding positions until the trend shows signs of exhaustion; there are no arbitrary exit timelines, only data-driven momentum signals. This is further reinforced by the fund’s sector-agnostic and rules-based selection, which avoids discretionary macro calls. Importantly, Samco incorporates a risk overlay, trimming positions when valuations or volatility stretch, but this is done to protect gains, not to tactically time market cycles. The overall framework suggests that Samco is firmly anchored in mechanical trend-following, rather than trying to predict short-term market movements. 

In contrast, Quant Mutual Fund, led by Sandeep Tandon, follows an opportunistic, macro-aware investment style that blends multiple timeframes and strategies. Tandon distances himself from pure momentum investing, describing Quant as a fund that looks for neglected opportunities at inflection points, where market psychology shifts dramatically. The philosophy here is multi-layered and tactical, including hedge positions, cash calls, and valuation-based rebalancing, making timing an integral part of the process. 

However, Tandon insists that such timing is analytical, not speculative, rooted in liquidity trends, risk appetite, and valuation metrics. In essence, Quant’s strategy leans toward strategic market timing, aimed at generating absolute returns across cycles, rather than passively following trends. 

Audit Framework: Trend or Timing? To evaluate whether India’s actively managed momentum mutual funds are skillfully timing the market or effectively riding sustained trends, we conducted a comprehensive audit focusing on two prominent active momentum funds, Samco Active Momentum Fund (launched in July 2023) and Quant Momentum Fund (launched November 2023). Using 6-month rolling returns from their respective inceptions until July 18, 2025, alongside benchmark comparison to the Nifty 200 Momentum 30 Index, this study integrates insights from portfolio turnover, drawdown behaviour, return consistency, factor regression, and alpha generation. Our intent is not to compare the funds with each other, but to understand whether their strategy leans towards market timing or trend-following. 

1. Portfolio Turnover & Holding Period
◼ Samco Active Momentum Fund (Inception: July 2023) had a turnover ratio of 886 per cent as of June 30, 2025, significantly high and suggestive of frequent trading decisions.
◼ Quant Momentum Fund (Inception: November 2023) recorded a turnover ratio of 390 per cent, still elevated but comparatively moderate. 

High turnover levels (generally >100 per cent) coupled with likely short average holding periods (<6 months) strongly suggest market timing behaviour rather than following trend. While Samco articulates a trend-following philosophy, the extremely high turnover ratio suggests more frequent trading, which may resemble timing behaviour. However, drawing a definitive conclusion from turnover alone could be misleading without deeper portfolio analysis. 


2. Table: Rolling 6-Month Return Behaviour vs Benchmark


Samco displays lower volatility (Std Dev: 12.87 per cent) with decent average return, hinting at short-term tactical rotation to contain drawdowns. 

3. Drawdown & Recovery Behaviour

Quant’s drawdown nearly mirrors the benchmark’s, with some lag in recovery, suggesting passive trend capture rather than active rotation. Samco’s deeper drawdown is counterintuitive despite its high turnover, potentially reflecting unsuccessful timing decisions in volatile markets. 

4. Factor Regression: Style Consistency​​​​​​​

Quant’s higher R² with Nifty 200 Momentum confirms a stable, style-consistent strategy, closely aligned with its benchmark. Samco’s lower correlation reflects greater deviation, likely driven by frequent shifts, i.e., market timing. 

5. Alpha Consistency vs Nifty 200 Momentum 30
Excess Return Frequency (Rolling 6-Month Alpha):
Samco:
Out of total 373 data points-
◼ Negative alpha (-0.25 to 0): 198 times
◼ Slightly positive alpha (0 to 0.25): 175 times n Roughly equal mix: suggests episodic alpha, indicating market timing.
◼ Quant: Out of total 290 data pointsn Negative alpha (-0.25 to 0): 69 times
◼ Slightly positive (0 to 0.25): 221 times n High frequency of marginal outperformance suggests consistent trend-capture strategy. 

6. Risk-Adjusted Returns: Sharpe, Sortino, Alpha


Quant carries a higher beta and alpha, true to trend-following behaviour. Samco, with lower beta and controlled volatility, hints at a defensive overlay, typical of timing efforts. 

Conclusion: Timing or Trend,Choosing Your Momentum Strategy 

Momentum investing is not a one-size-fits-all approach. As seen in the contrasting strategies of Samco Active Momentum Fund and Quant Momentum Fund, both fund houses employ active momentum frameworks, but with fundamentally different philosophies. Samco appears to lean toward a markettiming strategy, characterised by high portfolio turnover, dynamic sector rotation, and a focus on managing drawdowns through tactical shifts. This suggests an effort to time momentum cycles, though such moves may sometimes lead to style drift or mistimed executions. On the other hand, Quant Momentum Fund exhibits the hallmarks of a trend-following strategy, with persistent exposure to the momentum factor, high beta positioning, and a strong correlation with the Nifty 200 Momentum 30 Index. Its approach appears more systematic and pro-cyclical, aiming to harness sustained price trends rather than preempt market turns. 

Despite these observable traits, it's worth noting that philosophical alignment and actual fund behaviour may occasionally diverge, partly due to the funds' relatively short track records (both being launched just over two years ago) and partly due to the inherent flexibility that active momentum investing demands. Managers may adjust tactics in response to shifting market conditions, resulting in temporary deviations from stated strategy. Broadly, active momentum investing branches into two viable styles: trend-following, which relies on systematic exposure and periodic rebalancing, and market timing, which attempts to anticipate inflection points based on macro or valuation cues. What matters most is not which fund performs better over a short period, but whether the fund’s implementation style aligns with the investor’s expectations, risk appetite, and tolerance for volatility. Momentum works, but how it's harnessed, and by whom, makes all the difference. 

Which Style Suits You: Trend-Following or Market-Timing? For most investors who go for momentum funds, trendfollowing momentum funds are a safer, more sustainable choice. These strategies prioritise process over prediction, capturing trends without trying to outguess the market. By riding momentum, they often generate alpha with lower risk and fewer drawdowns than market-timing approaches. 

Trend-followers typically stay invested during rising phases, reducing the risk of missing out, a key behavioural edge that helps avoid FOMO. In contrast, market-timing funds may suit experienced investors who can handle volatility, track signals, and make quick decisions. But the precision they require makes them less suited to long-term, retail-focused strategies. 

For retail investors, especially those investing via SIPs and valuing consistency over tactical shifts, trend-following better supports long-term wealth creation. It reduces decision fatigue, behavioural errors, and underperformance from mistimed exits or re-entries. Its edge lies in staying aligned with the market’s direction, helping investors remain invested, reduce regret, and build wealth. 

In essence: If you're seeking consistency, discipline, and a smoother ride through market cycles, trend-following is the better bet. 

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