Portfolio allocation: ETMarkets Fund Manager Talk: Diversified allocation helped this fund manager’s portfolio beat benchmark by 18% in 2022

The start to the New Year has not been good for markets. Given the volatility due to persisting global risks, how should investors approach markets?
The changes taking place in the global economy are structural rather than cyclical. Be it the higher inflation or the changing nature of global supply chains, these might be challenging at one end but they also present India with great opportunities.

This year where the global economy is expected to grow at 1-2%, India is expected to grow at 7-8%. India would be a major beneficiary of global manufacturing moving out of China.

The point is despite all the challenges the world economy is facing, India is placed very well. Hence, long term investors really have nothing to worry about and they should stick to asset allocation as per their risk profile and do disciplined investing through these phases to make good wealth over the long run.

In the run-up to the Budget 2023, which are the sectors that will see most of the action? Which are the sectors you would recommend getting into?
Budget is normally inconsequential for long term investors. It just increases the volatility in the short run, other than that, it hardly has any impact.

Way back when LTCG (long-term capital gains) was introduced on equity, the markets crashed in the short run, but they have still delivered huge returns after that.

Long term investors should continue their investments irrespective of what happens in the budget.

Retail inflows remained buoyant in 2022, do you expect the buoyancy to sustain in this year too?
There has been a sea change in investors’ perception towards equity markets. I expect that the retail investors will continue to invest in equity markets and this trend will only grow.

One thing that worries me is the expectations of new investors from the markets. I see that most of the young investors have unreasonably high expectations from equity markets and they are going to be disappointed.

How has your WealthBasket performed in 2022?
Like earlier years, 2022 has also been a phenomenal year for ‘Gulaq’ investors. All our portfolios were able to beat the benchmark convincingly.

Our flagship portfolio ‘Gulaq Gear-6 WealthBasket’ beat the benchmark by more than 18% in 2022.

The consistency in outperformance is a result of our focus on giving a well-diversified portfolio and not getting fixated on a single factor or sector.

Which are the key parameters/metrics you look at while choosing stocks in your portfolio?
Our quant models track about 130 factors which include everything from fundamental factors like P/E, P/B, RoCE etc to technical factors like momentum, low-volatility to macro factors like oil prices, interest-rates and USD/INR to find the stocks which are best suited for the given market conditions.

For example, 2022 was not a good year for momentum portfolios and our quant models rightly reduced the weightages of momentum and increased the weight of low-volatility and quality which work better in flattish markets like we are seeing in 2023.

What kind of diversification in asset allocation would you recommend to your clients in an expected volatile market condition?
Asset allocation is one of the most important things in investing. Irrespective of the markets, if one follows right asset allocation depending on his/her risk profile, then 80% of the work is done.

Before one starts investing, one should always take a risk profiling survey and determine the asset allocation accordingly. He/she can do this on their own or take the help of a financial advisor.

One of the mistakes investors make is that because of the increase or decrease in asset prices their asset allocation becomes haywire and they do not rebalance it to their desired asset allocation. This might seem beneficial in the short run, but is counterproductive in the long run.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)