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Got a million bucks to spare? WhiteOak’s Aashish Somaiyaa tells you where to invest

As much as international diversification is necessary for portfolio diversification, India is clearly the investment destination today, he feels.

August 09, 2022 / 06:57 AM IST

Aashish Somaiyaa, CEO and executive director, WhiteOak Capital Asset Management, is a strong believer in actively-managed funds. His newly-formed WhiteOak AMC specialises in them.

Somaiyaa has seen the the mutual funds industry grow over the 22 years that he has been part of it. Before WhiteOak, he headed Motilal Oswal AMC, which grew from assets under management (AUM) of Rs. 1,300 crore in 2013, to Rs 40,000 crore when he left the fund house in 2020. He has a background in sales and marketing, having headed sales and distribution at ICICI Prudential AMC, among India's three largest fund houses.

In a conversation with Moneycontrol, he tells us where investors should invest if they have a million bucks to spare.

Has the time for passive funds come? Should investors have one or two passive funds in their portfolio?

Passive funds can simplify decision-making. Investors who do not want to labour over deciding which sectors, themes, markets caps, fund categories, and AMCs to invest in, are better off just buying the market or the asset class as a whole. This is where broad market funds investing in the Nifty 500 have a role. Similarly, if you are investing in the US or emerging markets and you do not know credible managers, you can gain that exposure just by buying the passive basket.

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But a lot of discussion on active and passive investing in India is influenced by American examples, I disagree with that approach because India is not the USA.

For instance, market cap has gone up 3x over the past 25 years in the US, while the number of listed companies has halved. There is a lot of American data that refutes the absence of alpha; on the contrary, American data just suggests that alpha has migrated from public to private markets.

With rising institutionalisation of markets and `alternisation’ of institutional allocations, the playfield for public managers in the US has shrunk, and the alpha has gone to private equity funds, crossover funds, buyout funds, and the like. Companies are taking longer to list and coming to list after 12-15 years of life in private.

On the other hand, institutionalisation is relatively new in India, and `alternatization’ is nil, except for select HNI or family office clients. We have twice the number of listed companies as the US, a most diversified market, and within every sector we have myriad small-, mid-, and large-cap firms.

Further, when it comes to alpha potential in India, I must remind our readers that we are still at $2K per capita. Hence, most sectors and companies are either not in the public markets, or not sufficiently scaled.

I would attribute underperformance of active funds in India in the last 2-3 years more to very narrow economic performance, and hence narrow index performance. We have very large funds, which is not a problem. But when large funds are managed with a narrow style, sector, or market-cap bias, it can be anti-alpha. Managers will need to adjust size for the strategy, or vice versa.

Markets have been volatile. Should we hold on for some more time or is this a good time to start investing?

Firstly, the term volatility alludes to negativity in the market. It is used more on the downside, than on the upside, even though there exists a positive connotation to the terminology too.

Wealth is always created when you invest in bad markets. Only if you invest in bad markets is when the account statement will look good when the markets look good.

Secondly, India’s economic position in terms of corporate governance, and business cycle is much better as compared to other countries, which makes India a good opportunity.

Assuming that you are in the 25-30 age bracket, don’t have to rely on this money for day-to-day expenses, and want to invest for five to ten years, then the entire money should be invested in domestic multi-cap mutual funds. Put your money between now and October-November 2022, as that’s where I think the buying opportunities remain.

At Motilal Oswal AMC, which you previously headed, there were hardly any debt funds in your basket. WhiteOak also appears to be an equity-oriented fund house. Does that mean you do not believe in debt funds? Should investors even consider debt funds?

Fixed income is important in your portfolio. But how much you should keep in debt instruments will depend on the person. Of course, we need to have market conditions in mind, but market conditions are less important compared to the persona of the individual.

Let us say, if you were 50, and the amount you are investing is a very important part of your total corpus and you cannot tolerate volatility. In that case, conservative funds like the balanced advantage ones would be recommended. They will automatically calibrate the debt and equity exposure, depending on the right indicators of market valuations.

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So, no debt funds?


I personally do not invest in debt because I am a long-term investor with goals over 10-15 years. Most of us are but we always underestimate our time horizon and overestimate our need for liquidity. I don’t mean to say there is no place for debt, any conservative investor who cannot tolerate volatility or even notional risk to capital, or whose goals are within the next five years, must have allocation to debt.


Today, investors want to invest beyond equity and debt. Options have also gone up. What other asset classes can investors consider at this point in time?


India is — relatively — the most attractive market right now. But international funds are attractive as well. Even within international funds, the thing to currently focus on is the global emerging markets fund category.


Secondly, apart from fixed income, in India, a hybrid proposition like infrastructure investment funds and real estate investment funds (REITs) are relatively under-appreciated.


I am quite positive on real estate. But it is not an investment option for most investors because the ticket sizes are very large.


What is your take on gold and other commodities? 


Personally, I think gold only helps cushion the volatility on the downside. It doesn’t really provide returns on its own. But anything that cushions your downside is bound to restrict your upside when things improve. For people who are risk averse and want low volatility, it’s a good asset class. But I don’t allocate to gold personally.


How many mutual fund schemes should one have in their portfolio? 


I have only one or two schemes which are managed by the fund house I work for as a policy. In line with my preference for equity, for most investors with well thought out equity allocation, I would recommend two flexicap schemes (one of which can be a sec 80C approved ELSS or Tax Saver Fund; if you don’t want to make choices then just Nifty 500 Fund), two mid-cap schemes, two equity schemes investing in US markets, two equity schemes investing in emerging markets that are complementary to Indian equity markets.


Where do you invest your own money?


I am fully invested in equity. Half my portfolio has been in real estate for quite some time now — say the last two to three years.

Bhavya Dua
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