Modi 2.0 completes its first Anniversary on May 31, 2020. Preparations are on in full swing to highlight the “historic achievements” of the government (resorting to technology). Abrogation of Article 370, Article 35A, construction of Ram Temple (after the Apex Court’s verdict), the contentious Citizen Amendment Act (CAA) and the National Register of Citizens (NRC) are, of course, the focal points the Modi-led-NDA government and bhakts (ardent supporters of the Modi government) will boast about. But besides the muscular nationalism and majoritarian politics, as regards to the handling the economy, the track record has not been very encouraging – in fact, proved to be a rather tumultuous experience for investors.
India’s GDP growth rate has plunged near the ‘Hindu Growth Rate’ (of 3.5%). For Q4FY20, the GDP growth rate will plunge sharply due to the economic loss caused by COVID-19 crisis and the reading for the ensuing quarters may get further depressive. For complete normalcy to return it will take quite a while — maybe a couple of years — and provided we do not have another wave of Coronavirus or any other catastrophic event. The equity markets, in the meantime, will swing up and down – almost like a crazy rollercoaster – turning out to be a nerve-racking experience for investors.
In the current times, while the government is taking count of its “achievements”, you as an investor must review the investment portfolio prudently to assess what and how much you have achieved. Now is the best time to review your investment portfolio amidst the COVID-19 lockdown. It is possible that your outlook towards money may have changed; risk profile may have altered; investment objectives may be different; the time horizon-to-goal has reduced; risk-return expectations are different, and you probably wish to change reconsider certain investment avenues plus asset classes.
Currently, tactical asset allocation is the key, particularly to protect against the downside risk.
Do not be under the impression that the Balanced Hybrid Funds and/or Aggressive Hybrid Funds you have invested in will take care of the downside risk. The fact is, several balanced funds, in the endeavour to clock better returns (and be assessed better on star ratings), have lost a sense of balance: skewed their portfolio mainly to equities (for better tax treatment), exposed investors to high risk, but not rewarded investors very well. Likewise, with some of the so-called Multi-Asset Funds that invest in across the three key asset classes: equity, debt, and gold. They have not dextrously shifted between asset classes promptly, to limit the downside risk.
You see, all asset classes do not move in the same direction — up or down — always. To give you an example, in the calendar year 2006, equity clocked a handsome +49% absolute return, gold +20%, while bonds +4%. Last year, in 2019, equity clocked +14%, gold +24%, and bonds +11%. And in 2020 so far, on a year-to-date basis (as of May 26, 2020) equity has lost nearly -26%, gold has gained around +18%, while bonds +6% in absolute return terms. Most equity-oriented mutual funds and Aggressive Hybrid funds over the last 1 year have eroded wealth.
Table: Performance across Market Cycles of Aggressive Hybrid Funds and Multi-Asset Funds
|Scheme Name||Bear Phase||Bull Phase||Bear Phase||Bull Phase||Bear Phase||Bull Phase||Corrective Phase|
|08-Jan-08 To 09-Mar-09||09-Mar-09 To 05-Nov-10||05-Nov-10 To 20-Dec-11||20-Dec-11 To 03-Mar-15||03-Mar-15 To 25-Feb-16||25-Feb-16 To 23-Jan-18||23-Jan-18 To 26-May-20|
|Aggressive Hybrid Fund|
|Aditya Birla SL Equity Hybrid '95 Fund||-43.5||68.3||-15.1||26.3||-12.4||27.3||-10.0|
|Baroda Hybrid Equity Fund||-51.1||51.2||-18.9||21.3||-14.8||27.4||-8.7|
|Canara Rob Equity Hybrid Fund||-44.2||64.7||-11.8||25.8||-14.9||27.0||0.7|
|DSP Equity & Bond Fund||-38.2||58.0||-18.3||22.6||-10.6||27.9||-2.9|
|Edelweiss Aggressive Hybrid Fund||–||–||-24.6||22.9||-12.6||22.1||-4.8|
|Franklin India Equity Hybrid Fund||-38.8||50.0||-14.2||26.4||-8.8||22.7||-5.6|
|HDFC Hybrid Equity Fund||-56.0||98.8||-25.1||23.3||-12.4||30.2||-7.9|
|ICICI Pru Equity & Debt Fund||-44.1||52.5||-11.0||28.5||-12.2||30.5||-5.8|
|JM Equity Hybrid Fund||-58.3||55.6||-19.9||23.8||-13.3||19.2||-12.0|
|Kotak Equity Hybrid Fund||-44.3||45.7||-18.4||21.1||-13.3||28.3||-6.9|
|L&T Hybrid Equity Fund||–||–||–||29.4||-9.1||26.2||-6.8|
|LIC MF Equity Hybrid Fund||-45.6||35.7||-19.8||22.6||-24.6||25.2||-4.6|
|Nippon India Equity Hybrid Fund||-41.0||81.6||-22.4||27.4||-10.9||29.3||-16.6|
|Principal Hybrid Equity Fund||-46.6||59.7||-23.0||25.3||-14.4||36.7||-7.2|
|SBI Equity Hybrid Fund||-46.1||59.0||-22.2||30.2||-8.2||24.7||-2.8|
|Tata Hybrid Equity Fund||-44.8||64.7||-14.3||30.3||-13.1||22.0||-7.4|
|UTI Hybrid Equity Fund||-42.2||60.0||-20.3||22.8||-14.0||28.3||-10.2|
|Category Average of Aggressive Hybrid Funds||-45.7||60.4||-18.7||25.3||-12.9||26.8||-7.0|
|Axis Triple Advantage Fund||–||–||1.3||12.4||-3.9||14.7||0.0|
|HDFC Multi-Asset Fund||-2.7||19.5||5.4||12.4||1.7||13.3||-2.8|
|ICICI Pru Multi-Asset Fund||-47.7||75.4||-19.7||28.7||-18.8||33.4||-5.4|
|SBI Multi Asset Allocation Fund||-4.1||11.3||2.8||12.7||6.5||12.5||3.8|
|UTI Multi Asset Fund||–||57.0||-9.9||15.6||-15.4||19.1||-4.1|
|Category Average of Multi-Asset Funds||-18.2||40.8||-4.0||16.4||-6.0||18.6||-1.7|
|Multi Asset Fund of Funds|
|Quantum Multi Asset FOFs-Direct Plan||–||–||–||–||-2.5||14.7||2.8|
|S&P BSE SENSEX – TRI||-54.7||79.4||-24.2||25.1||-21.3||28.5||-5.8|
Data as of May 26, 2020
(Source: ACE MF, PersonalFN Research)
The Performance Across Market Cycle (PAMC) study reveals (see table above) that Aggressive Hybrid Funds although delivered handsome returns during the bull phases, the fund managers have not shown much success in limiting the downside risk — which effectively separates the men from the boys. The fund managers were able to swim with the tide when everything appeared hunky-dory, but in rough waters or when the going got tough, they did not fare very well and exposed investors to high risk.
Similar is the case with a few Multi-Asset Funds. Except for the SBI Multi-Asset Allocation Fund and the Quantum Multi Asset Fund of Funds, the others have not displayed much success in protecting wealth during the bear phases of the market. Perhaps, the fund managers of most other multi-asset funds could not envisage the challenges on the way to wealth creation with equities and did not deftly shift to other asset classes such as debt and gold to safeguard investors. For better tax treatment, they inclined the portfolio to equities and hoped to earn better returns.
Investors should keep in mind that returns should never be the focal point of consideration to select a Multi-Asset Fund, so long as the returns outperform bank FD rates over the medium to long term. The topmost priority should be given to better risk management. A favourable status with equity-orientation should be secondary-after all the investor must first make gains with the downside risk being managed well.
The approach to follow going forward…
Please keep in mind that so far there is no end in sight from the COVID-19 pandemic and a financial crisis is brewing.
The International Monetary Fund (IMF) has observed that this (COVID-19) crisis is like no other and, even though policymakers 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.
The aftereffects of COVID-19 are conceivable, a further correction cannot be ruled out and the bottom is unknown. COVID-19 is likely to impact corporate earnings, the GDP growth will dwindle as we continue to be under lockdowns and demand remains muted. While the Modi 2.0 recently announced a Rs 20 trillion booster package (purportedly almost 10% of India’s GDP, but in reality around 1% of GDP) to combat the COVID-19 crisis, the booster shot has failed to boost the market spirit. The reason for this is many of the measures are not truly booster shots to address the immediate problems, but long-term structural measures with the boastful drumroll of self-praise.
In such times, wealth creation through lone reliance on equity as an asset class will not be easy and you, the investor, would be unguarded to heightened volatility. So, add gold and debt to the portfolio tactically.
Gold will continue to gain all the attention amidst economic uncertainty. Easy monetary policy action and accommodative stance to address growth concerns, a record-high debt-to-GDP ratio, trade war tensions, renewed 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 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.
Debt, on the other hand, will offer relative stability to the portfolio – provided the debt mutual fund schemes held are ones with high-quality debt papers of PSUs and government securities (Plus some money in bank Fixed Deposits).
Hence, review and take a call on the mutual fund schemes in your portfolio, paying attention to the following facets:
- Portfolio characteristics (the top-10 holdings, top-5 sector exposure, how concentrated/diversified is the portfolio, the market capitalisation bias, the style of investing followed – value, growth, or blend, the asset allocation, portfolio turnover)
- The investment strategy of the fund
- The credentials of the fund management team (the experience of the fund manager, the number of schemes he/she manages, the track record of the mutual fund schemes under his/her watch, the experience of the research team)
- Returns over various time frames (6-months, 1-year, 2-year, 3-year, 5-year, 10-year, since inception)
- Performance across market phases (i.e. bull and bear phases)
- In case of Balanced Hybrid Funds/ Aggressive Hybrid Funds and Multi-Asset Fund, whether they have been able to manage hard-earned money of investors with true balance and shift between asset classes
- Risk ratios (Standard Deviation, Sharpe, Sortino, etc.)
- And the overall efficiency of the mutual fund house in managing investors’ hard-earned money (i.e. the proportion of AUM actually performing)
Besides, it pays to know about the investment process & systems and risk management measures in place.
Here’s why the Quantum Multi Asset Fund of Funds will potentially be appropriate for your portfolio…
The Quantum Multi Asset Fund of Funds incepted on July 11, 2012 (with investments in three key asset classes), follows an astute investment strategy that takes into consideration…
- 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 boast of a respectable +8% compounded annualised return since its inception without exposing investors to the unreasonable downside. QMAFOF carries a moderately high risk and has been true to its label with tactical asset allocation to equity, debt and gold. The 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 successfully managed investors’ hard-earned money.
You see, here are five benefits of investing in Quantum Multi Asset Fund of Funds:
- Gives you, the investor optimum diversification with just one investment and tries to protect downside risk
- With a time horizon of 3-5 years, you have a chance to generate returns better than those generated by fixed deposits, without taking unwarranted risks
- You need not worry about portfolio rebalancing as the fund manager reviews the portfolio at regular intervals.
- 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.
- 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.
Quantum Mutual Fund, launched in 2006, embraces ‘investor first’ approach and manages your hard-earned money with integrity, trust and a solid investment process backed performance. Quantum Mutual Fund holds the credence of being a prudent ‘asset manager’ and not an asset gatherer.
Wish to invest in Quantum Multi Asset Fund of Funds? Click here.
This article first appeared on PersonalFN here