Stocks struggle, but these multi-asset funds score big: What’s driving returns?

Multi-asset funds have outperformed the Nifty over the past one- and three-year periods with the category delivering an average returns of 11.44% and 14.45%, respectively, compared with a 1.26% decline and an 8.57% gain for the Nifty, as reported by ETBureau. (Data source: Value Research)

Multi-asset funds invest across equities, fixed income, precious metals, REITs, InvITs and overseas equities. Some multi-asset funds typically keep 65-70% in unhedged equities, with the rest spread across fixed income, precious metals, REITs and InvITs. Another set keeps equity exposure at 35-65%, giving fund managers greater leeway to allocate to other asset classes depending on market conditions.

The outperformance has been aided by strong returns from asset classes outside equities, particularly precious metals. Domestic gold prices have risen around 45% over the past year and 150-160% over three years, translating into annualised returns of roughly 36-38% over the three years.

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have also contributed, with the Nifty REITs & InvITs index returning around 13% over one year and 12.5% annualised over three years.

Quant Multi Asset Allocation Fund delivered the highest annualised return of 22.25% in the last three years. This was followed by Nippon India Multi Asset Allocation Fund (19.66%), WhiteOak Capital Multi Asset Allocation (17.10%), ABSL Multi Asset Allocation (16.74%) and UTI Multi Asset Allocation (16.53%).

"Opt for a multi-asset fund which has higher flexibility to buy other low-correlated assets like fixed income, gold, InvITs and foreign equity. An equity allocation of 35-65% gives fund managers greater room to move into assets such as gold, silver, InvITs or REITs when opportunities emerge," said Manuj Jain, co-founder, ValueMetrics Technologies.