1 week ago
Experts Urge Asset Allocation Over Chasing Next Winning Asset Class
Different kinds of investments do well at different times.
Stocks, bonds, gold and silver do not always move in the same direction.
It is very difficult to know which one will win next.
A multi-asset fund puts money into several of these investments.
A fund manager can change the mix when market conditions change.
This may make losses and ups and downs less severe than investing in only one asset class.
However, these funds can still lose money, especially when markets are under stress.
They are generally more suitable for long-term investors than people who need cash soon.
Indian equities remain volatile, while gold and silver have corrected after strong gains and debt has delivered steadier, moderate returns.
Experts say asset allocation may be more reliable than trying to predict the next outperforming asset class.
Multi-asset funds combine equity, debt, gold and silver, with managers adjusting allocations as market conditions change.
Diversification may reduce dependence on one asset class and smooth portfolio volatility, but it cannot eliminate losses.
The strategy may suit long-term investors, depending on their risk appetite, investment horizon and existing portfolio.
- Who
- Investors and experts Harshad Patwardhan and Sanjay Bembalkar of Union Asset Management Company.
- What
- The article examines whether investors should chase the next winning asset class or use disciplined allocation across equity, debt and precious metals.
- Where
- The discussion focuses on Indian equities and investment strategies available to investors.
- When
- Against the backdrop of the recent market environment, with volatility and corrections across major asset classes.
- Why
- Predicting the next outperforming asset class is difficult, so diversification may help manage portfolio risk and reduce dependence on one market outcome.
Chasing Market Winners
Disciplined Asset Allocation
How to pursue returns
Chasing Market Winners
Investors may try to identify and move into whichever asset class is likely to outperform next.
Disciplined Asset Allocation
Experts say different assets lead at different points in the cycle, making a diversified allocation more practical than repeatedly timing switches.
Portfolio concentration
Chasing Market Winners
Concentrating on a currently strong asset class can provide exposure to its gains, but leaves the investor more dependent on one market outcome.
Disciplined Asset Allocation
Combining equity, debt and precious metals can reduce dependence on any single asset class and may smooth portfolio performance.
Risk protection
Chasing Market Winners
Moving between asset classes may appear to offer a way to avoid losses, but predicting market changes consistently is difficult.
Disciplined Asset Allocation
Multi-asset funds seek to manage risk rather than eliminate it; correlations can change during market stress and losses remain possible.
Key facts
- Asset classes discussed
- Equity, debt, gold and silver
- Recent equity conditions
- Indian equities have remained volatile amid global macroeconomic and geopolitical uncertainties.
- Recent precious-metals conditions
- Gold and silver have experienced periods of correction after strong runs.
- Multi-asset approach
- Combines several asset classes and may involve active allocation and periodic rebalancing.
- Main benefit
- Diversification can potentially reduce drawdowns and make the investment journey smoother.
- Main limitation
- Multi-asset funds do not eliminate volatility, downside risk or losses.
- Suitability
- The strategy is described as generally more suitable for long-term investors than those with short-term liquidity needs.
Quotes
Harshad Patwardhan
Chief investment officer at Union Asset Management Company
“Different asset classes do not always respond to the same market factors in the same way.”
livemint.com
“Asset allocation is the first key step in the journey of investment for an investor”
livemint.com
Sources
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