Stocks, gold and debt: Why ICICI Pru’s Dharmesh Kakkad favours a multi-asset strategy now

Chasing the hottest asset class often leads to crowded trades and subpar returns. With market volatility rising, ICICI Prudential’s Dharmesh Kakkad argues that structural mean reversion makes timing the market incredibly risky. Instead, he highlights a dynamic multi-asset strategy of balancing equity, debt, and commodities as the optimal blueprint to remove emotional bias and capture steady, risk-adjusted growth over the next 12–18 months.

ICICI Prudential's Multi-Asset Active FOF is open till 14 July. Edited excerpts from a chat with the fund manager on multi-asset investing:

Many retail investors continue to chase the best-performing asset class. Why is this approach risky at this stage of the market cycle?

Investing in the best-performing asset class at a particular point in time often results in a subpar investment experience. It also means buying into the most crowded trade, where returns are driven largely by positioning rather than by fundamentals. Good returns come from buying assets at the right price rather than buying good assets at any price. This distinction is often overlooked by retail investors. Furthermore, investors also tend to extrapolate current trends into the future, which is incorrect, as mean reversion tends to occur in most cases.

How does a multi-asset fund of funds differ from a traditional multi-asset fund? What advantages does the FOF structure offer?

A Multi-Asset Active FoF and a Multi-Asset Fund differ in how portfolios are built and how asset allocation is executed. The ICICI Prudential Multi-Asset Active FoF invests through a combination of actively managed equity and debt schemes, along with commodity ETFs. Here, instead of selecting individual securities, it allocates across underlying funds, using in-house asset allocation models to dynamically decide the mix between various asset classes. The investment style will be a blend of growth and value. On the equity side, it combines sectoral, thematic, market-cap and style-based strategies, while the debt allocation comprises duration and accrual-oriented funds. The active equity-oriented schemes will range from 30%-80%, active debt-oriented schemes will range from 10%-60%, and units of Gold and/or Silver ETFs will range from 10%-30%.


In contrast, the ICICI Prudential Multi-Asset Fund invests directly in securities across at least three different asset classes with a minimum allocation of 10% to each. The fund follows a counter-cyclical investment approach and takes directional calls based on the economic cycle. It can also use covered call strategies, REITs and InvITs to enhance portfolio yield. The net equity can range from 10%-80%, while debt will be between 10%-35%, gold/silver ETFs/ETCDs will be 10%-30% and REITS and InvITs can range from 0% to 10%.

FOFs invest in mutual fund schemes rather than directly investing in stocks. As a result, an FOF fund manager can allocate across different investment styles (growth, value, contrarian) and themes based on prevailing market conditions. Risk is also diversified, as the investment is spread across a basket of mutual fund schemes.

How does the ICICI Prudential Multi-Asset Active FOF decide when to rebalance across underlying schemes? Is the process entirely model-driven, or does fund manager discretion play a role?

The fund first determines its equity allocation, which is based on an in-house valuation model. Commodity allocation is then decided using a combination of quantitative ratios and macroeconomic indicators, with the remaining allocation directed towards debt. As a result, there are no discretionary biases involved in the asset allocation process.

What indicators do you monitor before increasing or reducing exposure to equities, debt or gold?

We monitor various fundamental and macroeconomic indicators, such as the price-to-earnings ratio, price-to-book ratio, market cap-to-GDP ratio, G-Sec yields, and other relevant variables while making asset allocation decisions.

Given the current macro environment, which asset class appears relatively more attractive over the next 12–18 months, and why?

We believe the current environment is characterised by heightened volatility and moderate return expectations. In such a scenario, allocating across multiple asset classes is the optimal approach. This provides adequate diversification, helps investors navigate volatility, and, over the long term, has the potential to deliver better risk-adjusted returns.

For whom is the ICICI Prudential Multi-Asset Active FOF most suitable? Is it aimed at first-time investors, experienced investors or those nearing financial goals?

The offering is suitable for all types of investors. This is because the fund takes care of asset allocation based on the relative attractiveness of the various asset classes. Hence, investors can consider this for lumpsum investment as well.

Which sectors of the market do you think offer the highest risk-adjusted opportunity at this stage?

Currently, we find the risk-reward profile attractive in BFSI, auto, oil & gas, FMCG, and pharma.

Your Pharma Healthcare and Diagnostics (P.H.D) Fund has almost doubled investor wealth in the last 3 years. Tell us what worked in your favour in this thematic fund, and which pockets of the sector do you think there's enough room for growth in the next 5 years?

While pharma and healthcare are a single sector, it comprises several sub-segments, spanning across companies focused on the domestic market, export-oriented companies, API manufacturers, CRO/CDMO companies, diagnostics, and hospitals. Identifying which segments within the broader sector to go overweight or underweight on, followed by a bottom-up stock selection approach within those identified segments, has helped the fund generate alpha.

We believe there is significant scope for the domestic pharma market to grow, driven by the shift towards lifestyle-related chronic therapies. The recent launch of GLP-1 therapies is also expected to have a positive impact on the industry's overall growth. In the US market, biosimilars are another attractive opportunity. Recently, the USFDA introduced revised regulations that significantly reduce the financial and operational barriers to entering the US market. In addition, several upcoming patents are due to expire in the biologics space, representing a multi-billion dollar opportunity. Many Indian pharmaceutical companies have invested in this segment and are actively pursuing these opportunities. With US tariff-related headwinds now largely behind, there are multiple growth drivers that are likely to support the sector's continued expansion.

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