With rising global uncertainty, individuals should consider multi-asset funds for core allocation. These funds allocate investments dynamically in equities, debt, and gold, yielding higher long-term risk adjusted returns.
Multi-asset funds have consistently demonstrated resilience during challenging market phases. In fact, over a shorter one year and two years, and even a longer five years, returns from multi-asset funds are higher than diversified large-cap funds. In the current market environment, the focus should remain on maintaining the right mix of asset allocation aligned to individual risk appetite and goals.
A well-diversified portfolio across equity, debt, and other assets is far more critical than taking tactical calls based on one macro event, such as India-US trade deal. “Multi-asset funds help smooth volatility and reduce behavioural errors during market cycles,” says Jashan Arora, director, Master Trust Group.
Gold and silver have emerged as the white knights for these funds providing crucial support amid weakness in equity. As rebalancing happens within the fund, it does not trigger taxes for the investor, making it a tax-efficient way to maintain an optimal asset mix.
“Multi-asset funds help navigate uncertainty by controlling volatility and improve long-term risk-adjusted returns through diversified allocations,” says Aditya Agrawal, chief investment officer, Avisa Wealth Creators.
Asset allocation strategy
It is necessary for investors to evaluate the framework of asset allocation, rebalancing discipline, and costs of the fund. Their inclusion of low-correlated assets like commodities enables investors to navigate uncertain markets more effectively, making them a great choice for portfolio stability. “The performance of multi-asset funds may differ depending on market conditions and allocation decisions by the fund manager,” says Prashasta Seth, chief executive officer, Prudent Investment Managers.
Gold has been an important defensive investment in the last few years, with prices increasing around 75% in the last one year amidst geopolitical and inflationary risks. Investors should note that the multi-asset fund they are investing in should not skew portfolio balance to gold and increase the concentration risk.
Key risks
Not all multi-asset funds manage allocations actively or effectively, and performance can vary significantly based on allocation calls. Frequent shifts between asset classes may lead to periods of underperformance if market moves are abrupt or unexpected. They may not always align perfectly with an investor’s individual asset allocation needs. “Investors should be sure of the multi-asset fund they choose, as mandates differ — some follow a conservative approach, while others take more aggressive equity calls,” says Nirav Karkera, head, Research, Fisdom.