According to ICICI Prudential AMC, investor flows into sectors often rise after periods of strong performance, when optimism and visibility around the theme are already elevated.
“The timing problem in sectoral investing is real and well documented. Investors frequently move into sectors after a strong rally, while exits tend to happen during phases of underperformance,” said Chintan Haria, Principal – Investment Strategy at ICICI Prudential AMC.
He pointed to historical examples across market cycles, including the sharp investor interest in pharmaceutical stocks following the sector’s strong run during 2014–15, as well as the technology rally during the dotcom period.
“Several sector cycles have shown that investors often chase recent performance rather than anticipate emerging opportunities,” he said.
According to ICICI Prudential AMC, this behavioural aspect is one of the reasons multi-sector passive fund-of-funds (FoFs) are emerging as an alternative approach within the passive investing space.
Unlike traditional sectoral investing, where investors themselves decide sector allocations and timing, a multi-sector passive FoF allocates across multiple sectoral indices or ETFs within a single structure.
Allocation changes are driven through a structured framework based on macroeconomic trends, earnings outlook, liquidity conditions, valuations, and relative sector positioning.
“The objective is not necessarily to predict exact tops or bottoms in sectors, but to create a disciplined allocation framework that can participate in sectors where the macro environment appears supportive,” Haria said.
ICICI Prudential AMC also highlighted that sector leadership can shift meaningfully across different phases of the economic cycle, influenced by factors such as interest rates, domestic demand, government policy, capital expenditure activity, commodity trends, and global growth conditions.
According to the AMC, this is why portfolio rebalancing within a multi-sector passive FoF is designed to be linked to changing market conditions rather than a fixed quarterly or semi-annual calendar.
A dynamic allocation framework allows the portfolio to respond when the underlying investment thesis changes, instead of waiting for a scheduled rebalance period.
At the same time, the AMC noted that diversification remains a central aspect of the strategy. While the portfolio has flexibility to increase exposure to sectors where the outlook appears favourable, allocations are spread across multiple sectors rather than concentrated in a single theme.
The portfolio can allocate across sectors such as banking and financial services, FMCG, information technology, healthcare, automobiles, energy, metals, power, infrastructure-linked sectors, and real estate, among others.
According to ICICI Prudential AMC, the intention is to balance sector participation with diversification across different drivers of economic activity and market performance.
The AMC also positioned the structure as an operationally simpler alternative for investors compared to directly managing multiple sectoral ETFs independently.
“Investing through individual sectoral ETFs requires investors to actively manage sector selection, allocation weights, rebalancing, and timing decisions on an ongoing basis,” Haria said. “A multi-sector passive FoF seeks to bring these elements within a single investment framework.”
ICICI Prudential AMC added that internal changes in portfolio allocation within the FoF structure do not create taxable events for investors each time sector weights are adjusted, unlike direct switching between ETFs at the investor level.
