K.P.Venkatarama Krishnan, Mutual Fund Distributor
The only thing that is constant is ‘change’, the saying is a perfect description for the returns derived from the different asset classes, never linear even over medium term. So, an investment strategy that worked for a year can’t become sacrosanct for a longer-period for making a similar degree of returns.
Historically, data shows that every asset class performed differently each year, and even sub-set of the assets class shows a lot of divergence. For instance, in 2020, gold delivered the best return of 28% among all major asset classes, followed by domestic equities (18%), international equities (17%) and debt (14%). However, the return pecking order of asset classes has seen a massive shift in the current year. Boosted by a record inflow by the retail investors, expanding price-earnings to discount future earnings growth, the local equities with a return of 31.3% have emerged as the best performing asset class in 2021 so far, while the returns from gold, which has been a top performer in the previous two years has dwindled to negative. If one looks at sectoral churn within local equities, which is topping the returns chart this year, there has been a continuous change in the sectors that are lifting the returns of equities. This can be gauged from the fact that unlike 2017, when local equities were ruling the returns’ chart, consumption was the biggest theme, but so far, in 2021, it is the IT sector that has delivered the highest returns.
Given the uncertainty and inconsistency in returns of different asset classes along with the limited access to information; the essentials to take a quick decision to churn asset class swiftly in order to seek superior returns; investors typically grapple with problem ranging from selecting the asset class to timing the market cycle, ascribing weight to different class to dealing with cumbersome taxation calculation etc. So, what is the best solution for investors to generate reasonable returns without being concerned about asset class selection, purchase timing, sizing of allocation and taxation related to churn?
The most viable solution is multi-asset funds—a class of fund which has the flexibility to invest in a bouquet of asset classes such as local equities, global equities, debt and gold, thereby creating a mix of non-correlated assets. These asset classes typically have a weak or negative correlation with the other asset classes, helping not only in portfolio diversification but also in smoothening out investors’ experience. Therefore, multi-asset funds offer the most attractive investment opportunity for a non-aggressive investor, who wants to stay invested and look at consistent returns but don't have an appetite for any sudden shock in their portfolio.
Among the multi-asset funds, the Passive Multi-Asset Fund of Fund, the new offering from ICICI Prudential, is a simple solution. It effortlessly addresses the checklist to invest in different classes, captures market timing well, assigns appropriate weight to individual asset class, reviews investment strategy from time-to-tome along with being tax efficient. The fund can invest in domestic equity between 25-65% of its total asset size, a proxy to India growth story; while it can assign a weight of 10-30% for the global equities—providing geographical diversification to the portfolio. Beyond equities, debt allocation of this FoF could range in 25-65% and in order to protect the returns from surging inflation, the fund has a mandate to invest in the range of 0-15% in gold. Being a passive fund, ICICI Prudential’s fund capitalizes on a wide canvas of the available themes offered by the index and ETF based funds.
Within domestic equities, the fund manager can build the portfolio from a variety of ETFs and FoFs ranging across market capitalisation based ETFs, factor based smart beta ETFs, sector/thematic ETFs. On the global side, the investments made will be handpicked from 30 well researched global ETFs that invest across markets such as US, Europe, China, Japan etc. Through this an investor gets exposure to a range of global markets which helps enhance the return potential of the portfolio.
To conclude, if an investor is looking for a one-stop solution for asset allocation needs, then this fund is a worthy consideration. Investors can initiate a long term SIP or even consider lump sum investment in this fund. Given that the allocation to various asset classes is actively managed, the fund holds the potential to generate superior risk-adjusted returns.
