Making money is hard, especially when the economic activity across the world is virtually shut, but there is always a bull market and a bear market in some asset class somewhere in the world at the same time.
The idea is to spot the opportunity across the globe and invest. This can be done effectively via the ‘tactical global asset allocation’ approach, which is the central mantra of investing at First Global, says Shankar Sharma, co-founder and vice-chairman, First Global, in ‘The Market Podcast’ with Moneycontrol.
You will be surprised to know that for the last ten years, Indian investors made zero returns in dollar terms if they invested in the S&P BSE Sensex alone. “The data is very clear that if you invested a $100 in the Sensex 10 years back, it is worth maybe $110 today, which is virtually zero return is over 10 years while globally it would have given you 2.5 times,” said Sharma.
If investors do not diversify globally, they will suffer SCCARS, that is - Single Country, Single Currency, Single Asset Risk.
“If you want to avoid SCCARS, you need to diversify but it has to be done very, very intelligently and very, very selectively because just going and buying and let’s say, a NASDAQ ETF, is not the solution, because NASDAQ has done well only in the last 12 or 18 months,” Sharma said.
He further added that it took 25 years for him and his team to understand this. “There are ways in which it can be done but definitely not just going and opening an account and trading foreign stocks or buying a single country Feeder Fund or an ETF will do the job because they all don't,” he said.
Diversification does not mean buying a single country ETF, it would actually lead to a bigger problem. For example, if one market, which is hot today, stops being hot tomorrow, what happens to the ETF then?
Or, for example, let us say, global equities tank, what happens? Are you in US treasuries also, which will gradually go up when global equities will tank?
“The point which investors should take note of is to be diversified globally across markets, across asset classes, across currencies, in order to have genuine diversification and you can't do it on your own, let's be very clear about it,” Sharma said.
(Tune in to the podcast for more)
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