Investors should not shy away from market volatility and try to learn how to benefit from it, feels Nimesh Shah, MD & CEO, ICICI Prudential AMC. In an interview with Mithun Dasgupta, he says it is good to diversify with investment in US stocks as well. Excerpts:
Globally, a few major events are imminent in 2014. The US Federal Reserve will begin tapering of its stimulus programme from January and the general elections at home are a few months away. So, do you expect market volatility to increase going forward?
See, mutual fund is a derivative product, the base product is equity. Equity markets, to my mind, are going to remain volatile for the next two-three years. I don’t see a single direction movement in the equity markets. I believe markets will remain volatile, even if they go up, they will with volatility. That is what my view is. So, we are a firm believer in volatility.
Amid such volatility, how do you see retail investors gaining from investments in mutual funds?
Especially for the retail investors, it is very difficult to time the market entry. But we should not run away from volatility, it is here to stay. We should see how do we make the market volatility our friend and how do we benefit from it. So we have created a series of funds, which gain out of volatility.
How do these funds gain from market volatility?
When you look at ICICI Prudential Dynamic fund or Balanced Advantage Fund, these funds gain out of volatility. Whenever the markets go up, they (these funds) sell equities and buy debts, and whenever the markets go down, they buy equity. So, asset allocations in these funds are not constant. We have derived this price-to-book ratio. At various price-to-book ratios, when the ratio in the markets goes very high, we go out and sell equities and convert into debts. And when the ratio goes down in the markets, then we invest in equities. In this process, the customers always get an advantage of lower prices in buying. This model has worked beautifully well for us. Our Dynamic fund has given almost 26% returns in the last 10 years vis-à-vis 19-20% given by the markets.
You also have a US-focused equity fund. How is the fund performing?
We introduced the fund in July, 2012. In the last 15 months, cumulatively it has given about 15% return