In these times of heightened volatility and nervousness in the market, asset allocation fund could be the right way of investment. An asset allocation fund is comprised of various asset classes and offers a diversified portfolio of investments.
A well-diversified portfolio across asset classes with low or negative correlation would generally protect investors from market volatility, says Amit B Ganatra, Senior Fund Manager, HDFC Asset Management Company (AMC) Limited.
Here are edited excerpts from that interview:
Q. According to you, what could be the impact of the second wave of pandemic on the markets? Do you think it will have a ripple effect on the FY22 earnings as well?A.
Markets are in the process of crystalising and discounting FY22E earnings expectations. Based on current vaccination trends and learning from other countries which are ahead in their vaccination drive, India’s
COVID situation should improve in the next few months.
However, in the meantime, rising cases and lockdowns could result in small earnings downgrades across domestic cyclical sectors. These sectors have witnessed correction from recent peaks and to that extent, pain is already being reflected in current valuations.
Q. Other than the impact of the COVID-19 pandemic, what are the biggest threats for the economy and market in the short to medium term?
A. Along with a significant rise in spread of COVID-19, the unwinding of expansionary fiscal and monetary stimulus, a significant rise in crude oil prices, a sharp rise in interest rates globally, etc. are the key risks in the near term.
Q. In the current market backdrop, how should investors realign their portfolio, and what should be the investment strategy for the year ahead?
A. India’s earnings cycle has turned around positively in FY21. However, markets are bound to be volatile due to both domestic as well as global factors.
Hence, if an investor wants to participate in equities but does not want to bear higher volatility – they could consider investing in assets with low or negative correlation to reduce risk and target optimal returns.
Q. What are the benefits of investing in asset allocation funds, and why should investors consider it in these volatile times?
A. A well-diversified portfolio across asset classes with low or negative correlation would generally protect investors from market volatility.
A diversified portfolio across asset classes like equity, debt and gold
depending on their relative attractiveness based on prevailing market conditions would enable investors to target optimal returns in all market conditions.
Q. What is HDFC Asset Allocator - Fund of Funds all about? What is the investment strategy of the new fund?
A. HDFC Asset Allocator is a fund of funds scheme that aims to generate capital appreciation by managing the asset allocation between equity-oriented, debt-oriented and gold ETF schemes.
The fund aims to follow a systematic and process-driven approach to asset allocation with the help of a financial model based on valuation parameters.
Even within Equity-Oriented Schemes, the scheme will invest in schemes across different categories. The idea is to dispassionately manage an active asset allocation strategy in a disciplined manner with periodic review and rebalancing, which otherwise becomes a challenge for investors due to emotions such as fear and greed.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.