The Indian equity markets are on a rollercoaster with the uncertainty surrounding the COVID-19 pandemic. It’s been a nerve-racking experience for investors and wealth has been eroded.
As we continue to battle COVID-19 with lockdown 3.0, on a year-to-date basis the S&P BSE Sensex is down -23.9% as of May 5, 2020, (see Table 1 below).
Table 1: Wealth erosion across market cap segments
|Particulars||S&P BSE SENSEX||S&P BSE Mid-Cap||S&P BSE Small-Cap|
|All-time high (Dates)||20-Jan-2020||09-Jan-2018||15-Jan-2018|
|All-time high level (in points)||42,273.87||18,321.37||20,183.45|
|Level as of Jan 1, 2020 (in points)||41,306.02||14,998.63||13,786.69|
|Level as of May 5, 2020 (in points)||31,453.51||11,391.21||10,649.61|
|YTD Return (%)||-23.9%||-24.1%||-22.8%|
|Correction since the all-time high (%)||-25.6%||-37.8%||-47.2%|
Data as of May 5, 2020
(Source: bseindia.com; PersonalFN Research)
Balanced Hybrid Funds that are supposed to be balanced and protect downside risk have gone on to erode investors’ wealth by seldom maintaining a ‘fair balance’ and displaying unreasonable love and exuberance for equities plus for taxation reason — to be treated as an equity-oriented fund. (see Table 2 below).
Similarly, many multi-asset funds that hold the mandate to invest with allocation across three asset classes i.e. equity, debt and gold with minimum 10% in each have posted negative returns (see Table 2 below).
Table 2: Report card of Balanced Hybrid Funds and Multi-Asset Funds
|Scheme Name||AuM (Cr)||3 Mths||6 Mths||1-Yr||2-Yr||3-Yr||5-Yr||P2P Returns:
Jan 1, 2020 To
April 30, 2020
|Balanced Hybrid Funds|
|SBI Equity Hybrid Fund||26,924.55||-16.8%||-13.2%||-7.9%||-0.5%||4.5%||-12.1%|
|ICICI Prudential Equity & Debt Fund||16,219.25||-17.2%||-17.1%||-14-7%||-4.4%||0.5%||5.8%||-16.1%|
|HCDF Hybrid Equity Fund – Direct Plan||14,890.78||-15.2%||-12.7%||-12.2%||-5.5%||-2.1%||2.7%||-15.0%|
|Aditya Birla Sun Life Equity Hybrid 95||
|L&T Hybrid Equity Fund||5,405.22||-16.2%||-14.9%||-11.9%||-6.4%||-0.9%||4.9%||-12.8%|
|Multi Asset Funds|
|ICICI Prudential Multi-Asset Fund||9,022.56||-14.5%||-14.8%||-12.1%||-4.1%||1.0%||5.2%||-13.9%|
|UTI Multi Asset Fund||564.10||-11.8%||-10.4%||-6.8%||-3.2%||0.3%||2.9%||-7.1%|
|SBI Multi Asset Allocation Fund||220.63||-3.6%||-3.2%||-6.2%||4.2%||5.6%||7.6%||-1.7%|
|HDFC Multi-Asset Fund||198.05||-10.3%||-6.4%||-4.0%||-0.6%||2.2%||5.1%||-8.6%|
|Quantum Multi Asset Fund of Funds||16.23||-1.2%||-0.9%||-4.2%||5.0%||5.9%||7.3%||-2.0%|
|Benchmark: S&P BSE Sensex TRI||–||-22.0%||-21.1%||-17.5%||-3.5%||3.0%||4.3%||22.9%|
Data as of April 30, 2020
Growth Option and Direct Plan considered and the peer list is not exhaustive.
Returns for periods up to a year are absolute, while those over a year are compounded annualised.
(Source: moneycontrol.com; advisorkhoj.com; PersonalFN Research)
ICICI Prudential Multi-Asset Fund, HDFC Multi-Asset Fund, and UTI Multi-Asset Fund, in particular, have not lived up to the expectation and the trust evinced by investors (going by their AUM size). Not just are their recent returns amidst the outbreak of COVID-19 crisis unappealing, but even the 3-year and 5-year compounded annualised return is nothing to vie for. This is because they haven’t been able to sensibly allocate to the three key asset classes: equity, debt and gold, and play the investment strategy astutely.
On the other hand, the Quantum Multi-Asset Fund of Funds (QMAFOF) has depicted true balance backed by its sensible investment strategy, arrested the downside risk and relatively fared better vis-a-vis its peers over 3-year and 5-year time periods.
The Quantum Multi-Asset under normal circumstances by maintaining 25%-65% exposure to units of equity schemes (vide Quantum Long Term Equity Value Fund, Quantum Nifty ETF); 25%-65% exposure to units of debt and money market instruments (vide Quantum Liquid Fund, Quantum Dynamic Bond Fund); 10%-20% in units of gold schemes (vide Quantum Gold ETF); and up to 5% in money market instruments, Short-term Corporate Debt securities, Tri-Party Repo, Repo/ Reverse Repo in Government securities and Treasury Bills has been able to generate modest, yet appealing returns than the rest, and mitigated the risk by diversifying across asset classes: equity, debt and gold.
Historically it is proved that all classes never move in the same direction — up or down — at the same time. There could be times when certain asset classes perform better than the other and/or show an inverse relation to another (see Table 3).
Table 3: Here’s how various asset classes fared per calendar year
Source: Bloomberg; Equity represents Sensex returns, Debt represents 10 year G-sec return, Gold represents domestic Gold spot price returns; *As on 31st March 2020
Past Performance may or may not be sustained in future
If your multi-asset fund strategically allocates between equity, debt, and gold sensing the pulse of each asset class, maintains balance, and takes calculated risk sensible wealth creation is possible.
In the on-going COVID-19 crisis, equities will remain volatile, but given the sharp correction, there are and will be, enough long-term value-buying opportunities with a decent margin of safety.
Gold in such uncertain times would continue to gain all the attention. Easy monetary policy action and accommodative stance to address growth concerns, a record-high debt-to-GDP ratio, trade war tensions, geopolitical tensions, the potential risk to the inflation trajectory mainly due to food prices, increased stock market volatility, and the U.S. Presidential election in November 2020 are some of the factors expected to work in favour of gold. The precious yellow metal will demonstrate its trait of being a portfolio diversifier, a hedge (when other asset classes fail to post alluring returns), and command a store of value.
And speaking of debt & money market instruments, with exposure to highly rated papers and predominantly government securities, will act as a stabilizer.
A unique aspect of QMAFOF is that it has always taken relative valuations between asset classes into consideration, such as:
- Price-to-Earnings relative to historical averages;
- The relationship between earning yield to bond yield relative to historical averages; and
- Macroeconomic factors prevailing globally and within India
It is this wide-ranging and sensible approach that has helped QMAFOF to protect against the downside risk and reward its investors better than many of its peers. The fund managers, Mr Chirag Mehta (MMS – Finance, M.Com, and CAIA with over 13 years’ experience in research and investments) and Mr Nilesh Shetty (B.Com, MMS -Finance, and CFA with collectively 16 years in equity markets), have strategically moved in and out of the aforesaid asset classes wisely recognising their upswings and downswings.
The choice is completely yours: to stay invested in a ‘Balanced Hybrid Fund’/ Multi-Asset Fund that does not show true balance and keep harming your health and wealth; or make a sensible move and switch over to Quantum Multi Asset Fund of Funds that is truly balanced and has sensibly generated wealth for investors without the shrieking experience of a rollercoaster.
Wish to invest in Quantum Multi Asset Fund of Funds? Click here.
This article first appeared on PersonalFN here