Why multi asset mutual funds can be an attractive proposition for uncertain times

Markets across the globe are traversing through some of the most challenging times since the global financial crisis of 2008. There is a layer of geo-political developments as well leading to a veil of uncertainty which is keeping the investors on edge. Amidst all these, investors will be faced with a plethora of questions. Should they sit out of equity markets and wait for some semblance to come back, post the rally in gold prices, is it a good time to invest in the yellow metal and the likes.

At such times, multi-asset strategies are likely to provide better outcomes for investors. Therefore, rather than focusing on a single asset class like equities, investors should look at a combination of other assets including debt, gold, real estate and global funds. This is where a multi asset strategy or multi asset fund comes in.

Historical performance trends of various asset classes over the past decade and more, shows that the winning asset class keeps on changing every year.

(Equity: S&P BSE Sensex Returns; Global Eq: MSCI ACWI (INR Terms); Debt: CRISIL Short Term Bond Fund Index; Gold: MCX Prices. All above figures are Calendar Year Returns for the respective asset classes. The above are the performances of the indices and do not indicate the performance of the Scheme. Past performance may or may not be sustained in the future.)

In such a situation, one of the optimal approaches is to spread one’s allocation across asset classes, such that on an aggregate basis the portfolio can tap into the potential benefits and gains from each asset class. By having a diversified exposure across multiple asset classes, one can ensure that the portfolio is not adversely impacted in case of a negative development in any of the asset classes. This is where multi-asset offering such as a multi-asset fund becomes relevant.

Today, investors have the option of choosing either an actively managed or a passively managed multi-asset fund. Through either of the offerings an investor can get exposure to multiple asset classes like equity, debt and commodities. For example: In the case of ICICI Prudential Passive Multi-Asset Fund of Funds, the allocation to various asset classes is actively managed based on the changing market environment. The allocation to various asset classes is tweaked through holdings in index funds / ETFs of Indian and international equity, debt and gold ETFs. As a result, despite the portfolio consisting solely of passive offerings, their allocation remains actively managed. This aids in making the most out of volatile times and over long-term has the potential to generate superior risk-adjusted returns. Moreover, such an approach also helps limit the impact of volatility in a particular asset class on the overall portfolio.

To conclude, a multi-asset fund is a one-stop solution for an investor who aims to take exposure to multiple asset classes. For an investor who wishes to take a well-diversified exposure to various asset classes, be it through lump sum or SIP, the multi-asset fund is a good starting point.

(The author is Head of Investment Strategy at ICICI Prudential AMC)

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