In any market condition, asset allocation will be important to achieve optimal portfolio returns and financial goals based on your individual appetite. This aspect becomes more significant in the current situation as the indices touch new highs. The equity component tends to get crowded out in investors’ portfolios during such times, exposing holdings to losses during subsequent corrections.
Multi-asset funds that invest in a mix of equity, debt and gold can be suitable for investors with a modest appetite and even for those just starting their market journey with volatility in indices and macroeconomic indicators.
In this regard, ICICI Prudential Multi-Asset Fund can be a good choice for all investors considering its consistent performance over the years. Among the schemes in the multi-asset hybrid category, the fund has the best track record across timeframes.
Equity, debt and gold have very little correlation with movements in time lines. When mapped over a 10-20 year period, equity-debt, gold-debt and equity-gold have negative or very low correlation coefficients. Therefore, a diversified portfolio with all the three asset classes based on individual risk appetite can reduce risks and provide a smooth ride to goals.
That’s where a multi-asset fund can help. The fund manager makes decisions based on market conditions for equity, debt and gold, so such schemes make it easy for investors to enter the market, especially regardless of new index levels. Of course, a fund manager’s ability to make smart calls in at least three asset classes will be critical to the fund’s success.
Here are some indicators of how asset classes have moved over the years.
– In CY2008, during the global financial crisis, Sensex fell by 52.4%. In the same year, gold (MCX prices) provided 26.1 percent returns, debt (CRISIL short-term bond index) gave 9.5 percent. In the year In 2011, the Sensex fell by 24.6 percent, while gold prices rose by 31.7 percent. In the year In 2020, when the pandemic worsened, gold returned 28 percent, while the Sensex gave only 15.8 percent. Short Point: Returns of asset classes follow different directions.
Equity is generally a key and important component of any portfolio for long-term goals, as it drives returns. Gold is considered a hedge against inflation. But in the long run it has far outpaced inflation. The problem for investors, however, is several years of strong returns (23.2-31.7 percent returns from 2008 to 2011) and long periods of decline (4-8 percent declines annually from 2013 to 2015).
– In the five-year period from March 2007 to October 2022, the CRISIL Composite Bond Fund Index has given average returns of 7.3 per cent per annum. So debt is a stable factor in portfolios.
– When the equity component in a multi-asset fund averages 65 percent or more, you get equity tax benefits.
Why ICICI Multi Asset Fund?
Overall, it has become the best fund in the category, ahead of peers like HDFC Multi-asset, Axis Tri-Benefit and SBI Multi-asset Allocation. Quant Multi Asset has been closing the performance gap in recent years, but still outperforms ICICI Multi Asset.
The fund takes quick valuation and interest rate calls to consolidate asset allocation. He has been able to do well in this regard over the years. In the year From its peak equity allocation of 78 per cent in March 2021, the fund has reduced exposure to 56 per cent (various exposures) by October 2022. Gold and silver (light exposure) have around 14 percent. Debt and cash account for more than 29 percent of the portfolio.
The fund invests about 15 percent in cash in highly volatile markets, which helps protect against downside. ICICI Prudential Multi-Asset has been able to take contrarian calls like Metals & Minerals, Oil & Gas in 2021, Pharma in 2020, Power in 2016 and so on.
More recently, it has shown exposure to sectors such as software, consumer durables, retail and banking. The fund added weightage to energy, telecom, auto and pharma as valuations in these sectors are attractive.
Generally, investors with an investment tenure of five years and above five years can consider the fund for steady returns. Exposure can be taken for a long time through the SIP line.