It is quite intriguing that whenever mutual fund schemes perform well, fund houses attribute the success to their investing prowess but whenever something goes wrong, they point at unforeseen challenges. This is bizarre and improper because asset management companies and fund managers are also supposed to deal with challenges in play and limit the downside risk. And that’s where the investment processes & systems with risk management measures in place play a pivotal role.

Big fund houses (with large marketing budgets) engage in brand building and attract investors. But the question to ask is: Are all fund houses truly prudent ‘asset managers’ or some of them mere ‘asset gatherers’? 

Avoid being under the impression that big fund houses will not fail. The fiasco at Franklin Templeton Mutual Fund, the IL&FS episodeDHFL debacle, the crisis at Yes Bank, the bank ruptcies of many of R-ADAG companies, teach us a lesson and have debunked the “Too Big to Fail”myth. It’s time for financial advisors plus investors learn from the mistakes and not repeat them.   

Speaking of smaller fund houses, the year always treated with suspicion …and for this reason, their AUM is smaller in size.

Imagine if a smaller fund house had closed any of its mutual fund schemes abruptly; different sections of media, financial advisors, and investors would have barraged them with variety of pointed questions, doubted their seriousness in doing business and investment prudence.

The agony of investors has not ended with debt mutual funds fiasco…

As you know, some fund houses pushed Balanced hybrid funds (erstwhile known as Balanced Funds) soon after investors ditched bank fixed deposits in search of higher returns post-demonetisation.

Similarly, the idea of Multi-Asset Funds, which invest across the three key asset classes: equity, debt and gold, was put across. 

Monthly dividends; moderate risk profile; diversification; and better tax treatment made it a selling point and help garner significant AUM in certain schemes.

But unfortunately, many of the schemes have not been able to live up to the expectations of investors – in fact, have failed to maintain ‘balance’ and astutely shift between asset classes, and consequently given investors a rude shock — exposed them to higher downside risk, particularly amidst the novel Coronavirus or COVID-19 outbreak.

Table: Multi-asset funds – some have lost balance of late and the return has slipped sharply

Scheme Name 1-Year return Equity allocation
Quantum Multi Asset Fund of Funds 2.9% 45.8%
L&T Hybrid Equity Fund -10.0% 75.6%
ICICI Prudential Multi-Asset Fund -11.2% 68.6%
ICICI Pru Equity & Debt Fund -13.3% 66.2%
HDFC Hybrid Equity Fund -14.2% 68.8%
Aditya Birla Sun Life Equity Hybrid ’95 Fund -15.6% 74.9%
Franklin India Dynamic Asset Allocation Fund of Funds -24.7% 88.6%

Equity allocation as per the last disclosed portfolios
Data as on May 15, 2020
Source: Respective Fact sheets; PersonalFN Research

The table above suggests that Balanced Hybrid Funds and a few Multi-Asset Funds are mainly skewing their portfolio to equities for the better tax treatment, and to clock better returns. However, in the bargain,they have not been able to balance out the risks and have sharply eroded investors’ wealth in the last few months.

Even after the name change from ‘Balanced Funds’ to ‘Balanced Hybrid funds’, this category highly camouflages risks due to irrational behavior of asset management companies …and you discover it only when you dig deeper in their portfolios.

Some of them have taken high exposure to mid-and-small cap companies, plus also lost money on the debt portfolio side chasing high yields; by holding lower-rated papers issued by private entities.

For the investors of Multi-Asset Funds, superior return should not be the focal point of consideration, so as long the returns outperform bank FD rates over the medium to long term. The top most priority should be given to better risk management. A favorable status with equity-orientation should be secondary—after all the investor must first make gains with the downside risk being managed well.

The objective of holding a Multi-Asset Fund is not to put all your eggs in one basket, on the contrary, diversify across asset classes and lower the risk (because not all assets move in the same direction always). When a Balanced Hybrid Fund and a Multi-Asset Fund invests over 2/3rd of its AUM in equity — which also consists of some mid and small caps — how can it safeguard investors and be a true balance under intense bear market conditions?

A true Multi-Asset Fund is the need of the hour

COVID-19 has amplified the investment risk and financial crisis is brewing. The International Monetary Fund (IMF) has observed that this (COVID-19) crisis is like no other and, even though policy makers are providing support, there is substantial uncertainty about its impact on people’s lives and livelihood. We could be looking at the worst global recession — worse than the Global Financial Crisis of 2008 and the Great Depression of the 1930s.

So far there does not appear to be an end in sight from the Coronavirus pandemic. And in such times, investors need a mutual fund scheme that holds an effective strategy to ride through a crisis by investing across the key asset classes: equity, debt, and gold.

The Quantum Multi Asset Fund of Funds (QMAFOF) incepted on July 11, 2012, is truly balanced and holds well-diversified portfolio (across the three key asset classes: equity, debt and gold) at all the times — unlikely many of its peers who swayed by the excess exuberance in equities, have and eroded investors wealth.

Backed by an astute investment strategy, QMAFOF taking the 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 macro economic factors prevailing globally and within India, the two fund managers of QMAFOF, namely 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 generated a respectable CAGR of 6.5% over the last 5 years, 8.2% CAGR since inception, and protected the downside risk better than some of its peers in the last 1 year.

Five Benefits of investing in Quantum Multi Asset Fund of Funds

  1. Gives investors optimum diversification with just one investment and tries to protect downside risk
  2. Investors with a time horizon of 3-5 years, get a chance to generate returns better than those generated by fixed deposits, without taking unwarranted risks
  3. Investors need not worry about portfolio rebalancing as the fund manager reviews the portfolio at regular intervals.
  4. The expense ratio of Quantum Multi Asset Fund of Funds is one of the lowest in the category. In other words, one gets access to professional management at an extremely affordable cost.
  5. And above all, Quantum Mutual Fund’s strong research capabilities across various asset markets – equity, debt and gold, — with robust investment processes & systems offer investors an edge.

You see, some small fund houses like Quantum Mutual Fund are growing money with integrity, trust and a solid investment process backed performance.  

Wish to invest in Quantum Multi Asset Fund of Funds? Click here.

Before investors lose more money and as a financial advisor you lose your reputation, ask some really tough questions to fund houses who have failed to deliver, show them the mirror, seek answers to pertinent questions, and last but not the least, make your scheme selection matrix more robust.

Happy Investing!

by PersonalFN Content & Research Team

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