Markets can be volatile and unpredictable. There can be significant ups and downs in the market. However, a well-diversified portfolio across uncorrelated asset classes can protect investors from volatility as well as give stable returns in all market conditions. This strategy is called Asset Allocation.
With asset allocation, a diversified portfolio is created across asset classes like equity, gold, debt and liquid instruments. Depending on the market scenario, allocation to each asset class is varied optimizing the best possible return over the long run.
For example during a bull run, equity is given a higher allocation and during a risky/volatile phase gold/debt instruments are given a higher weightage to protect the portfolio against volatility.
Asset allocation is key to reduce risks for investors through diversification of their portfolio especially during market crashes caused by events like the COVID-19 outbreak.
Asset allocation strategies were able to provide a cushion to the portfolio minimizing the drawdown. Moreover, during the bull run, these strategies were able to switch allocation and maximize portfolio returns as well.
Asset allocation helps in achieving an individual’s financial goals. It can be tailored specifically for individuals who have different levels of risk appetite.
For example, an individual with a low-risk appetite will invest more in gold/debts like any other fixed income. On the other hand, an investor with a higher risk appetite invests in the equities.
Taking these factors into consideration a portfolio can be curated that best fits the financial goals of the investor.
Smallcases are model portfolios of stocks/ETFs based on a theme, idea, or strategy. It is a modern investment instrument for investors to build long-term diversified portfolios.
Smallcases are created by SEBI-registered professionals. Smallcases have brought a lot of flavor to investing as they are created across various strategies, market segments, sectors, and risk profiles.
Returns of these smallcases have been compared against the broader market (NIFTY 100) between 24th Jan 2020 and 31st March 2020, as the market witnessed a sharp drop in this period due to concerns around coronavirus.
Here is a list of smallcases that follow an Asset Allocation strategy with a goal to create a sustainable and ideal portfolio.
QPort-Momentum-All Cap: Minimum Investment - 70,979
This smallcase saw its returns decline by only 0.45 percent compared to the market which declined at 29.51 percent. It is a multi-cap portfolio that is managed by Benign Capital.
Follows a robust momentum strategy combined with tactical asset allocation. Assets are allocated between debt and equity through a tactical decision that is based on market observations.
This smallase also follows a strict observation of fundamental data to screen stocks for its portfolio. This strategy is tested over 100 years of global data by top researchers and 20years of Indian data in-house.
All Weather ETF Portfolio: Minimum Investment - Rs 5402
This smallcase saw it’s returns decline by only 5.93 percent compared to the market which declined at 29.51 percent. It is a large-cap portfolio managed by Dalal Street Bulls.
This smallcase follows a rule-based asset allocation strategy. It invests in gold and government securities when the markets are overvalued and equities when the markets are cheaper.
This smallcase keeps a very minimal churn rate with one rebalance every quarter for a stable portfolio.
All Weather Investing: Minimum Investment - Rs 3449
This smallcase saw its returns decline by only 8.13 percent compared to the market which declined at 29.51 percent. It is a largecap portfolio that is managed by Windmill Capital.
This smallcase allocates its assets to three classes such as Equity, Gold, And Debt. It comprises 4 types of ETFs namely: Nifty BeES and NIFTY Junior BeES, Gold BeES, and Liquid BeES to track equities, gold, and fixed income respectively
It is rigorously backtested with algorithms for over a decade. It uses a weighing scheme involving Maximum Sharpe ratio thus attaining maximum return per unit of risk taken.
Volatility in markets are measured using the VIX index and is allocated accordingly to the fixed income with the rest being shared between gold and equities.
Index Alpha: Minimum Investment - 2,896
This smallcase saw its returns decline by only 13.84 percent compared to the market which declined at 29.51 percent. It is a large-cap portfolio managed by QED Capital.
An evaluation of various research studies and asset allocation algorithms & strategies are conducted extensively to facilitate the processes of this smallcase.
The algorithms executed through this smallcase are designed to fit the Indian Markets and asset classes.
This smallcase is closely monitored through back-testing and live-testing to develop a systematic process to manage the IndexAlpha.
Liquidity filters are applied to select ETFs that are liquid and have low impact cost selected ETFs are divided into two categories: Equity and Fixed Income.
ICICI Prudential Diversified: Minimum Investment - 2,109
This smallcase saw its returns decline by only 18.36 percent compared to the market which declined at 29.51 percent. It is a large-cap portfolio managed by ICICI Prudential AMC.
This smallcase consists of ICICI Prudential Mutual Funds' Exchange Traded Funds (ETFs) with different underlying indices along with an allocation to gold. It also follows an asset allocation strategy that allocates across Large-cap, Midcap, and Gold for a diversified portfolio.
This smallcase also includes factor-based and Government disinvestment themed ETFs within its portfolio.
The strategy is designed for long-term wealth creation in a low-cost manner and is rebalanced on an annual basis perfectly tailored for the patient long-term investor.
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