The multi-asset fund category has beaten most debt and equity schemes returns on a year-to-date basis. This was driven by the fund houses which had higher gold allocation compared to equity.
Data on Value Research shows that on a year-to-date basis the category average returns of multi-asset has been 10% — the fourth highest year-to-date returns among all equity and debt categories. Only international equity and two sectoral categories – auto and banks –gave better returns in the range of 10.58%-25.46%.
Golden edge: How precious metals boosted returns
Pankaj Shrestha, head of investment advisory at PL Capital explained that the gold and silver component has made a big change in returns and that will still continue on likely safe haven buying as the dollar is expected to weaken. From January, domestic prices of gold and silver have risen by 51.2% and 65.7%, respectively.
Among the fund houses that were most successful in capturing this rally in commodity prices on a year-to-date basis were Samco MF, DSP MF, and Invesco MF with returns of 14.2%-15.2%.
Dynamic allocation strategies and future outlook
Aparna Karnik, fund manager at DSP Mutual Fund, said, “The exposure to commodities and overseas equities and fixed income helped in delivering healthy returns.” She added that the strategy was not to tilt to just one asset class. The fund has been maintaining a lower-than-average allocation to domestic equities due to valuations being elevated, which helped in the past year. “This allocation can increase with more reasonable valuations,” Karnik said.
UmeshKumar Mehta, CIO of Samco MF said the fund house believes in model driven investing. “Recently when gold was in bull market, we had increased our exposure up to 70% at various points in time, when equities were doing relatively poorer than gold we went in gold, dynamic asset allocation has helped us,” he said. Currently the fund has allocated 50% to gold, 40% equities and 10% in fixed income.
Among the fund houses that delivered the least returns during this period are Shriram MF, HSBC MF, and UTI MF. This was as they increased equity exposure when valuations became less expensive. Sharwan Goyal, fund manager at UTI AMC said the allocation to gold in UTI MAAF is based on its relative performance compared to Equity.
“Gold has significantly rallied and long-term performance trend shows typically gold has 10–15-year cycle and the returns are not steady. Historically in a cycle 2-3 years are strong and then returns get range bound.” he said. “Unlike equity there is no clear-cut fundamental basis and hence gold allocation should be primarily to diversify portfolio risk.”
Karnik also advises to maintain allocations in precious metals keeping in mind that prices could be volatile after such a strong run.
UTI uses dynamic asset allocation as well coupled with factor allocation. “The same framework has delivered strong outcome in last 2–3-year period,” Goyal said while noting one year back when Nifty was 26,000 levels, equity allocation was 47% for which has increased to 70% because valuations are much more favourable now