Investments are often made when an asset, company or stock is doing well, or has been doing well over a period of time. Even when it comes to investment funds, most follow a pro-cyclical trend. But according to Kalpen Parekh, MD & CEO at DSP Mutual Funds, as fund managers or even investors, the timing should be counter cyclical. Parekh was speaking at a media interaction to announce DSP’s latest Multi Asset Allocation Fund.
Parekh says that in their experience they have seen how there is a tendency to invest in past returns which often lead to poor returns in the future due to the cyclical nature of markets. As a result, investors often get demoralised by that product or asset. “As money managers we feel it is our duty to attempt some kind of timing when it comes to product launches,” he says.
Countercyclical investing
But of course, there are challenges with countercyclical fundraising as you will garner less assets under management. A new fund offer (NFO) in a product based on countercyclical trends will garner less assets while a product based on pro cyclical trends will do well and be more attractive. But Parekh says he is okay with that as when a fund is counter cyclical, the near-term performance may look unimpressive, but in the next cycle it will look good.
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Parekh says often when past returns look very good complacency sets in and more money starts flowing into the industry. At this time, it is important to think about what can go wrong and one needs to study the history of markets, cycles and asset classes. “We have seen enough number of years when an asset class has given negative or zero returns. For example, when it comes to equity, for over 10 years the Sensex returns (during 1993-2003) were zero. During 2003-2007, during the bull run, returns were made, but only by those who had the courage to be invested in 2003, when the last annual return was zero.”
Timing the market
When it comes to building their product line, Parekh adds that their thesis is to bring out conservative products when the markets are bullish. When the markets are bearish, they look to bring out thematic or aggressive products. While DSP Mutual Funds has an expansive range of products for a variety of markets and assets, Parekh says that their goal is to leverage the cycle of the market and try and bring products “where the next three years returns of the investor would be relatively better than if it was left to themselves.”
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