The current pandemic situation has abruptly halted the livelihoods of individuals. In terms of investment, investing in equity market is extremely volatile, debt markets are in turmoil due to aftermath of credit default, and successive rate cut have caused confusion over safety, returns and risk for investors.
However, the gold market, particularly the index, has soared high to show that gold is a safe haven indeed against an economic crisis.
On the backdrop of this, Motilal Oswal Mutual Fund has launched a Motilal Oswal Multi Asset Fund, including several other fund houses. It believes that every asset class has a role to play and contributes its own set of properties to give us a final asset allocation with properties much different from the properties of the original ingredients.
A diversified multi asset fund usually can generate long-term capital appreciation by investing in multiple asset classes with lower volatility, yet aiming for reasonable returns. Different levels of correlation among different asset classes provide the portfolio with an effective hedge.
Diagram: Composition of MOMAF explained
Different asset classes react differently to business cycles, changes in the economy, and geo-political realities. Hence, each one is associated with different levels of risk. Asset allocation tries to balance the risk by dividing assets among investment vehicles.
However, do note that MOMAF will allocate its assets primarily (and heavily) to equities in a range of 50% to 10%, including exposure to international funds, followed by debt, and gold investment. The fund is a moderately high-risk investment position and consider only if you have an investment horizon of 5 years or more.
Table 1: Details of Motilal Oswal Multi Asset Fund (MOMAF)
|An open-ended scheme investing in Equity, International Equity Index Funds/ Equity ETFs, Debt and Money Market Instruments and Gold Exchange Traded Funds
|Multi-asset allocation hybrid fund
|To generate long term capital appreciation by investing in a diversified portfolio comprises of Equity, International Equity Index Funds/ Equity ETFs, Debt and Money Market Instruments and Gold Exchange Traded Funds.
However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.
|Rs 500 and in multiples of Re 1 thereafter
|Rs 10 per unit
|Mr Siddharth Bothra, Mr Abhiroop Mukherjee, Mr Herin Visaria and Mr Swapnil Mayekar
|30% Nifty 50 TRI + 50 % Crisil Short Term Gilt Index + 10% Domestic Price of Gold + 10% S&P 500 Index (TRI)
|July 15, 2020
|July 24, 2020
(Source: Scheme Information Document)
How will the scheme allocate its assets?
Under normal circumstances, the asset allocation will be as follows:
Table 2: MOMAF ‘s Asset Allocation
|Indicative Allocations (% of total assets)
|(High/ Medium/ Low)
|Equity, Equity related instruments and International Equity Index Funds/ Equity ETFs^
|Debt, Money Market Instruments
|Gold Exchange Traded Funds
^As per SEBI Circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017, Foreign Securities will not be treated as a separate asset class and accordingly International Equity Index Funds/Equity ETFs have been included in Equity and Equity related instruments. The scheme intends to invest in International Equity Index Funds/Equity ETFs upto 20% of net assets.
The Scheme retains the flexibility to invest across all the securities in the Equity and Equity related instruments, International Equity Index Funds/ Equity ETFs, Debt and Money Markets Instruments and Gold Exchange Traded Funds as per investment objectives of the Scheme and as per the SEBI Regulations. The portfolio may hold cash depending on the market condition. Exposure by the Scheme in derivative instruments shall not exceed 50% of the total Net Assets of Scheme. The Fund shall not write options or purchase instruments with embedded written options. The Scheme will not participate in stock lending more than 20% of total Net Assets of the Scheme and would limit its exposure with regard to stock lending for a single intermediary to the extent of 5% of the total net assets at the time of lending.
(Source: Scheme Information Document)
What will the Investment Strategy be?
The Scheme intends to generate long term capital appreciation by investing in a diversified portfolio of Equity and Equity related instruments, International Equity Index Funds/Equity ETFs, Debt and Money Market Instruments, and Gold Exchange Traded Funds (ETFs). The Motilal Oswal Multi und will use Motilal Oswal Value Index (MOVI) as an indicator for the asset allocation between Equities, Arbitrage, Derivatives strategies, and Debt.
The asset allocation shall be reviewed twice a month and the rebalancing will be conducted on the 15th of every month and a day prior to derivative expiry day on the Exchange (if the above days are a non-business day, the previous business day shall be considered for rebalancing).
However, there may be additional rebalances at the discretion of the Fund managers, based on the MOVI levels. The MOVI helps gauge the attractiveness of the equity market. The MOVI is calculated taking into account Price to Earnings (P/E), Price to Book (P/B), and Dividend Yield of the Nifty 50 Index. The MOVI is calculated on 30 Daily Moving Average of the above parameters.
A low MOVI level indicates that the market valuation appears to be cheap and one may allocate a higher percentage of their investments to Equity as an asset class. A high MOVI level indicates that the market valuation appears to be expensive and that one may reduce their equity allocation.
The equity allocation based on the MOVI levels is as below:
|Less than 70
|25.0% – 27.5%
|22.5% – 25.0%
|20.0% – 22.5%
|17.5% – 20.0%
|15.0% – 17.50%
|12.5% – 15.0%
|10.0% – 12.5%
|Greater than 130
|7.5% – 10.0%
(Source: Scheme Information Document)
NSE Indices Ltd. (NSE) is the calculating agent of NIFTY MOVI. NSE shall calculate, compile, maintain, and provide NIFTY MOVI values to Motilal Oswal Asset Management Company Ltd.
The NIFTY MOVI values will be published on the MOAMC website on a daily basis.
Any change in methodology of MOVI will be construed as change in Investment Strategy and will be carried out by obtaining prior consent of the Board of Trustees of Motilal Oswal Trustee Company Limited, the Trustees to Motilal Oswal Mutual Fund.
Hence, it will be construed as a change in the fundamental attribute; and accordingly, the relevant regulatory provisions will be applicable.
Equity Investment: The Fund shall follow an active investment style using bottom-up stock picking based on the ‘Buy Right: Sit Tight’ investment philosophy.
The Fund managers shall identify and invest in shares of businesses run by high quality management & having sustainable and scalable business models thus using QGLP (Quality, Growth, Longevity & Price) as the key evaluation parameters. The businesses should have strong earnings growth prospects and be available at reasonable valuations.
Equity Investment: The Fund shall follow an active investment style using bottom-up stock picking based on the ‘Buy Right: Sit Tight’ investment philosophy. The Fund managers shall identify and invest in shares of businesses run by high quality management & having sustainable and scalable business models thus using QGLP (Quality, Growth, Longevity & Price) as the key evaluation parameters. The businesses should have strong earnings growth prospects and be available at reasonable valuations.
The Fund Portfolio shall comprise of high conviction stock ideas from across market-capitalization levels/sectors. The portfolio stocks may be potentially concentrated in a few market capitalization levels/sectors, which are expected to do well and have lower downside risk
Debt: The Fund shall invest in various types of permitted Debt Instruments, including Government Securities, Corporate Debt, Other debt instruments, and Money Market Instruments of various maturities and ratings with the objective of providing liquidity and achieving optimal returns.
Arbitrage and Derivative Strategies: The Fund shall undertake Cash/Futures Arbitrage to take advantage of the volatile situation in the market. The Fund may use Derivatives, including Index Futures, Stock Futures, Index Options, and Stock Options, etc.
Gold: The Fund shall invest in Gold Exchange Traded Funds as gold, historically, has shown a low correlation with other asset classes like equity and debt making it a good asset to diversify the overall portfolio.
International Equity: The Scheme may invest in the units of Motilal Oswal S&P 500 Index Fund or any other international equity ETF/ Index Fund.
Who will manage Motilal Oswal Multi Asset Fund?
The Motilal Oswal Multi Asset Fund will be co-managed by four fund managers. Each one will be looking into different asset class of the fund’s portfolio.
Mr Siddharth Bothra will primarily manage the equity portfolio of the scheme; Mr Abhiroop Mukherjee will manage the debt portion of the scheme; Mr Herin Visaria will manage the International Equity portion; and Mr Swapnil Mayekar will manage gold component of the portfolio.
Mr Siddharth Bothra is the Senior Vice President and Fund Manager at Motilal Oswal Asset Management Company Ltd. He has a BCom (Honours), MBA (Post Graduate Program) from ISB (Indian School of Business, Hyderabad) and MBA International Student Exchange NYU Stern School of Business (New York) in Finance to his credit. He has over 18 years of experience in the fund management and investment research. Before joining the fund house in 2013, he worked as a Senior Vice President at Motilal Oswal Securities Ltd for 8 years. Prior to that, he has even worked with Alchemy Share and Stocks Pvt. Ltd. as an Analyst and at VCK Share and Stock Broking Services, Kolkata as a Senior Manager.
Mr Abhiroop Mukherjee is the Associate Vice President – Fixed Income at Motilal Oswal Asset Management Company Ltd. He has a BCom (Honours) and PGDM in Finance to his credit. He has over 10 years of experience in the Fixed Income Securities trading and fund management. Prior to joining the fund house, he worked as an Assistant Vice President of Fixed Income at PNB Gilts Ltd for 5 years
Currently, Mr Mukherjee manages/ co-manages the debt component at the fund house that includes: Motilal Oswal Ultra Short -Term Fund, Motilal Oswal Liquid Fund, Motilal Oswal Focused 25 Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Multicap 35 Fund Motilal Oswal Long-Term Equity Fund, Motilal Oswal Dynamic Fund, Motilal Oswal Nasdaq 100 Fund of Fund, and Motilal Oswal Equity Hybrid Fund.
Mr Herin Visaria is a Fund Manager at Motilal Oswal Asset Management Company Ltd. He completed his Commerce Graduation from Mumbai University. Mr. Herin has over 11 years of overall experience. He was associated with Motilal Oswal Securities Limited in Institutional Derivatives Research from Jan 2008 to Nov 2013, Religare Capital Markets Ltd in Institutional Derivatives Dealing from Dec 2013 to Aug 2017, and with Bank of Baroda Capital Markets Ltd. in Institutional Sales Trading from Sep 2017 to Mar 2018.
Currently Mr Viseria manages/co-manages International Equity at the fund house, which includes Motilal Oswal Nasdaq 100 ETF and Foreign Securities under Motilal Oswal Multicap 35 Fund and Motilal Oswal S&P 500.
Mr Swapnil Mayekar is a Fund Manager for Gold at Motilal Oswal Asset Management Company Ltd. He has completed his Masters in Commerce with specialisation in Finance Management and has over 11 years of experience in the fund management and product development.
Before joining Motilal Oswal Asset Management Company Ltd. in 2010, he was working with Business Standard as a Research Associate.
Currently, Mr Mayekar at the fund house co-manages/manages Motilal Oswal Nasdaq 100 Fund of Fund, Motilal Oswal Nifty Bank Index Fund, Motilal Oswal Nifty 500 Fund, Motilal Oswal Nifty Midcap 150 Index Fund.
The outlook for Motilal Oswal Multi Asset Fund
To achieve the stated objective of the scheme, Motilal Oswal Multi Asset Fund will be actively managed by experienced fund managers and follows a proprietary model (MOVI) of rebalancing to structure the portfolio for asset allocation as shown below.
Illustration: Motilal Oswal Value Index (MOVI) Magic
The asset allocation of the scheme will be such that it would capture the potential gains across market phases through a combination of asset classes. A multi asset fund has the advantage of capturing opportunities to generate returns. No doubt since the assets are non-correlated with each other within the portfolio, the fund will mitigate the risk of loss due to any single asset class.
However, the fund will have exposure to international markets, so there is a geopolitical risk involved and gold as a commodity too has certain risks: 1) For arbitrage trades – Operational challenges; 2) For Calendar Spreads and Directional Trades – Systemic and Un-systemic Risks.
Despite opportunities to do value stock picking, the earnings don’t justify the valuation levels. The novel coronavirus has muted corporates’ earnings and shows drop-in consumption preferences coupled with the continued slowdown in India’s economy. Besides, due to the strain of Indo-China relations, dealing with Chinese goods and services will weigh heavily on the markets and consumer consumption.
So, the construction of the portfolio would be a challenge for the fund managers to spot opportunities in the current environment and the risk management measures they adopt. Therefore, although there may be good opportunities in the long run, the risk could be very high as well. PersonalFN is of the view that understanding the overall implications is important before investing.
This article first appeared on PersonalFN here