Market sentiment has been punctured by lofty valuations, spiralling inflation, interest rate hikes, and a combination of macroeconomic and geopolitical issues driving this volatility. Unexpected upswings and downswings in financial markets may keep you on the edge of your seat as an investor. Given the current highly volatile market conditions, constructing an all-weather portfolio is a prudent choice for investors.
Markets are dynamic, and multiple factors drive returns across asset classes. Thus, no two asset classes perform in a similar direction. Well, strategic asset allocation and diversification is the key to tide over market volatility in the long term. Many investors seek to invest in passively managed index funds of a particular asset class like equity, debt, gold, and silver. What if you could invest in passively managed index funds and ETFs of various asset classes under a single fund?
Aditya Birla Sun Life Mutual Fund has launched India’s first Multi-Index Fund of Funds scheme. Aditya Birla Sun Life Multi-Index Fund of Funds is an open-ended fund of funds scheme investing in Exchange Traded Funds and Index Funds of equity and equity-related instruments (domestic index funds & ETFs as well as overseas ETFs), fixed-income securities, Gold and Silver.
Commenting on the launch of this fund, Mr A Balasubramanian, Managing Director & CEO at Aditya Birla Sun Life AMC, said, “Our multiple funds help investors take exposure in various stocks/sectors while our fund of funds will help investors to select among the many schemes available at the same time. A multi-index fund of funds, therefore, is a simple, all-weather solution providing flexibility to the money manager to invest in passively managed ETFs and Index Funds across asset classes ranging from equity to debt to precious metals. The fund of funds provides the convenience of investing at a reasonable cost and is tax efficient.”
Table 1: Details for Aditya Birla Sun Life Multi-Index Fund of Funds
|An open-ended fund of funds scheme investing in Exchange Traded Funds and Index Funds.
|Fund of Funds
|The primary objective of the scheme is to generate capital appreciation by investing in passively managed instruments such as ETFs and Index Funds of equity and equity-related instruments (domestic index funds & ETFs as well as overseas ETFs), fixed-income securities, and Gold/Silver. The scheme does not guarantee/indicate any returns. There can be no assurance or guarantee that the investment objective of the scheme will be achieved
|Rs 100/- and in multiples of Re 1 thereafter. Additional Purchase of Rs 100/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|50% Nifty 500 TRI + 30% CRISIL Low Duration Debt Index + 10% MSCI AC World Index + 5% Domestic Price of Physical Gold + 5% Price of silver (based on LBMA Silver daily spot fixing price)
|September 26, 2022
|October 10, 2022
(Source: Scheme Information Document)
The investment strategy for Aditya Birla Sun Life Multi-Index Fund of Funds will be as follows:
Aditya Birla Sun Life Multi-Index Fund of Funds will follow an investment strategy focussing on a combination of overall portfolio asset allocation & selection of the underlying units of ETFs and Index funds. The exposure to underlying mutual fund schemes shall include domestic Index Funds & ETFs as well as overseas ETFs for Equity, Fixed Income and commodities (like Gold & Silver).
The scheme endeavours a dynamic asset allocation of the overall portfolio as part of risk mitigation as well as gaining from the evolving global & Indian economic cycles. The asset allocation changes will determine the portfolio exposure to the 4 key asset classes Domestic Equity, International Equity, Fixed Income & Commodities (Gold & Silver). In these, Domestic & International Equity are focused on providing industry diversification & higher growth to the portfolio performance over time, while the focus of debt & commodity (gold & silver) allocation is to provide stability & hedge to volatility from macroeconomic & micro market disturbances.
The fund manager will follow an in-house Valuation Model that aids decision-making for optimal asset allocation. The choice of portfolio positioning or asset allocation at any point in time is more aggressive (higher equity Vs Debt & Commodities) or conservative (lower equity Vs Debt & Commodities) will be primarily driven by a model that is determined by consideration of multiple factors such as:
- Broad Market Valuations (Price/Earnings Ratio, Price/Book Ratio etc.) are relative historical averages as well as sectoral trends pertaining to valuations. This will also take into account the valuations in the international market relative to the domestic markets as well.
- The relationship between Earnings Yield (P/E inverted) to 10 Year Bond Yield relative to historical averages
- Fund flows in markets – both Foreign Institutional Investments and domestic inflows
- Monetary policy stance in conjunction with the slope of the yield curve for the RBI and other central banks.
- Key factors & metrics like the Copper to Gold Ratio, global and local macros as well as trade data to gauge the market sentiment with regards to Risk on or Risk off positioning
- Broader earnings guidance for markets, as well as leverage levels
This scheme will not make any investment decisions pertaining to the constituents of the underlying fund(s) and shall only invest through passive funds across the asset classes. The scheme may also invest in units of Liquid/debt schemes, debt and money market instruments, as stated in the asset allocation table.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Aditya Birla Sun Life Multi-Index Fund of Funds
|Indicative Allocations (% of Net Assets)
|Units of ETFs and Index Funds as stated below
|− Equity ETFs & Index Funds
|− Overseas equity ETFs
|− Debt ETFs & Index Funds
|− Gold/ Silver ETFs
|Debt & Money Market Instruments, including Tri-Party Repo^, G-Secs, Cash and Cash equivalent
|Low to Moderate
(Source: Scheme Information Document)
About the benchmark
The scheme will invest 50% in Nifty 500 TRI + 30% CRISIL Low Duration Debt Index + 10% MSCI AC World Index + 5% Domestic Price of Physical Gold + 5% Price of silver (based on LBMA Silver daily spot fixing price).
- Nifty 500 TRI – The NIFTY 500 index represents the top 500 companies selected based on full market capitalisation from the eligible universe.
- CRISIL Low Duration Debt Index – CRISIL Low Duration Debt Index seeks to track the performance of a low-duration debt portfolio comprising of short-term AAA/AA+/AA rated bonds, Commercial Papers and Certificates of Deposits
- MSCI AC World Index – The MSCI ACWI Index, MSCI’s flagship global equity index, is designed to represent the performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 24 emerging markets.
- LMBA Price of Gold and Silver – The domestic price of Gold and Silver is derived from the LBMA AM fixing prices, as there is no publicly available index which tracks the price of Gold and Silver bullion and instruments with Gold and Silver as underlying.
Who will manage Aditya Birla Sun Life Multi-Index Fund of Funds?
Mr Lovelish Solanki and Mr Vinod Bhat will be the designated fund managers for this scheme.
Mr Lovelish Solanki holds MMS (Finance) and BMS (Finance) degrees. He has an overall experience of over 10 years in Trading and Dealing. Prior to this, he was associated with Union KBC Asset Management Co. Limited as Equity/Equity Derivatives – Trader and with Edelweiss Asset Management Co. Ltd.
At ABSL AMC, Mr Solanki currently manages Aditya Birla Sun Life Index Fund, Aditya Birla Sun Life Arbitrage Fund, Aditya Birla Sun Life Gold ETF, Aditya Birla Sun Life Nifty ETF, Aditya Birla Sun Life Gold Fund, Aditya Birla Sun Life Balanced Advantage Fund, Aditya Birla Sun Life Equity Savings Fund, Aditya Birla Sun Life S&P BSE Sensex ETF, Aditya Birla Sun Life Nifty Next 50 ETF, Aditya Birla Sun Life Banking ETF, Aditya Birla Sun Life Nifty Smallcap 50 Index Fund, Aditya Birla Sun Life Nifty Midcap 150 Index Fund, Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund, Aditya Birla Sun Life Nifty Healthcare ETF, Aditya Birla Sun Life Nifty IT ETF, Aditya Birla Sun Life Silver ETF Fund of Fund, and Aditya Birla Sun Life Nifty Next 50 Index Fund.
Mr Vinod Bhat will be managing overseas ETFs of the scheme. He is a CFA (USA) and has completed MBA in Finance from Wharton University of Pennsylvania (USA), M.S. Industrial Engineering – Pennsylvania State University (USA), B.Tech & Mechanical Engineering – from IIT Bombay. He has an overall experience of 21 years, with over 12 years in the financial markets and investment banking space. Prior to joining ABSL AMC, he has worked as the Vice President – Corporate Strategy and Business Development with Aditya Birla Management Corporation Pvt. Ltd., Ocean Park Advisors (USA) as a Senior Associate Investment Banking and as Associate – Investment Banking with Credit Suisse (USA).
At ABSL Mutual Fund, Mr Bhat currently manages Aditya Birla Sun Life Global Emerging Opportunities Fund, Aditya Birla Sun Life Global Excellence Equity Fund of Fund, Aditya Birla Sun Life Asset Allocator FoF, Aditya Birla Sun Life Financial Planning FoF, Aditya Birla Sun Life Special Opportunities Fund, Aditya Birla Sun Life Flexi Cap Fund, Aditya Birla Sun Life ESG Fund, Aditya Birla Sun Life Multi-Cap Fund, Aditya Birla Sun Life International Equity Fund, Aditya Birla Sun Life Banking and Financial Services Fund, Aditya Birla Sun Life Business Cycle Fund, Aditya Birla Sun Life Commodity Equities Fund – Global Agri Plan, Aditya Birla Sun Life NASDAQ 100 FOF and Aditya Birla Sun Life Dividend Yield Fund.
Fund Outlook – Aditya Birla Sun Life Multi-Index Fund of Funds
Aditya Birla Sun Life Multi-Index Fund of Funds will aim to invest in passively managed instruments such as ETFs and Index Funds of equity and equity-related instruments (domestic index funds & ETFs as well as overseas ETFs), fixed-income securities, Gold and Silver.
The scheme follows an in-house model that determines optimal asset allocation to invest in the most apt themes across the industry. Equity exposure can help provide growth and diversification; debt can help provide stability, while gold and silver can act as a hedge against any macro risk. Being a fund of funds scheme, it uses a passive investment strategy that provides investors with an opportunity to invest across sectors and market caps at a low cost.
Although the scheme offers a multi-asset diversification advantage at a low cost, it is still prone to high market risks. The scheme holds major allocation to equities that are highly volatile in nature, debt securities that may carry credit risk and interest rate risk and investment in precious metals like gold and silver, where silver is more volatile than gold since it is an industrial metal. The fortune of this scheme will depend on the performance of the underlying indices.
Additionally, the RBI’s recent announcement to raise policy rates again by 50 basis points to reduce demand and control inflation, as well as the ongoing effects of geopolitical tensions, spiralling inflation, and other factors, could pose a serious risk to economic growth. Given the current elevated levels, the margin of safety appears to be low, and it is unclear where the equity market is headed. Bond yields may rise further in the event of unfavourable developments, such as a worsening geopolitical situation and a rise in government borrowing; this might lead to turbulence in the debt market. Investors should be prepared for some volatility in the commodity market as well. These factors, among others, may affect the performance of the underlying indices, and the scheme may face intensified volatility in the near term.
Thus, this scheme is suitable for high-risk investors willing to invest in a passively managed fund that invests across asset classes. Ensure you have a long investment horizon and that your investment objective aligns with the fund.
This article first appeared on PersonalFN here