Can rule-based multi-asset strategy beat traditional fixed-income approach?

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Can rule-based multi-asset strategy beat traditional fixed-income approach?


NEW DELHI: Investors world wide should brace for market volatility in the medium term, given heightened geopolitical tensions and the potential for downward earnings revisions, according to Motilal Oswal Private Wealth.

According to the wealth manager, gold has generated 8% returns on a year-to-date basis in rupee terms, Alpha Strategist Advantage Portfolio (ASAP) 1% and Nifty 2%.

“The returns provided show the importance of asset allocation in a portfolio,” the wealth manager to corporates/institutions, high net worth, and ultra-high net worth individuals said in a report.

To beat the market volatility, Motilal Oswal Private Wealth Management has curated an investment proposition named ‘Alpha Strategist Advantage Portfolio’. It comprises equal weighted investment in different asset classes such as Indian equities (investing only in the passive index funds, 20%), US equities (investing only in S&P 500 index funds 20%), gold (gold fund, 20%), debt (target maturity funds, 20%) and cash (arbitrage funds, 20%).

“Investors should avoid big changes to asset allocations that differ from long-term risk-based targets. Given the external risks and their potential impact, investing in a staggered manner may help iron out market extremes,“ the wealth manager said.

According to Motilal Oswal Private Wealth, the advantage of having an equal-weighted portfolio is having a rule-based strategy across asset classes. Equities are hedged against gold funds and arbitrage funds that provide cushion against any major fall. While on the upside, the fund enjoys higher returns from Indian and US equities.

Ashish Shanker, managing director & chief executive officer, Motilal Oswal Private Wealth, said, “The Indian economy and markets are at an inflexion point. A confluence of factors will lead to sustainable growth this decade from Indian equities. The number of UHNW individuals is expected to grow from 6,884 in 2020 to 11,198 by 2025.”

The ASAP portfolio from 1990 to 2022 grew at a compounded average growth rate of 11.7% against 9.9% growth in gold, 8.3% growth in debt and 13.8% and 13% growth in Indian and US equities, respectively.

The standard deviation of the ASAP was observed to be at 8% against a standard deviation of 27.4% in Indian equities, 15.1% in US equities, 2.6% in debt, 0.6% in cash, and 14.8% in gold. The benchmark index of ASAP is Crisil Composite which is the standard benchmark of the fixed income funds.

Nitin Shanbhag, head – investment products, Motilal Oswal Private Wealth, said, “The ASAP is an all-weather strategy and a superior alternative to fixed income funds. The rationale behind ASAP is to have a rule-based exposure across asset classes to take away behavioural biases and generate steady consistent returns over the long term.”

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