Asset Allocation

A Different Perspective

Today I am going to write about a scheme about which I was skeptical for quite some time. This scheme just does the opposite of what I believe in, which is invest/disinvest based on Market valuations. Those who know me and follow me will be witness to my thought processes of moving away from Traditional Mantras of Buy & Hold, SIP Karo Bhool Jao and Do Not Time the Markets. I have been a great believer and proponent (my own Mantras) of a) Downside Protection and b) be in the right Asset Class at Right Valuations. I have always believed that Investors are like Abhimanyu – stuck in Equity Chakravyuha – not knowing how or when to Exit.

Asset Allocation

Demystifying Buy Low & Sell High Concept

Sensex levels on January 01’2016 was: 26161. Sensex on December 26’2016: 26040. Last 52 week high was 29,045 as on September 08’2016. In short, with a Roller Coaster Ride, Sensex delivered practically no returns in 2016. However, if an investor would have invested through Asset Reallocation strategy either through say MisterBond’s Algo or a scheme like Motilal Oswal Dynamic Equity scheme or ICICI Prudential Balanced Advantage Fund; returns would have been on the positive side of approx. 5-6 % p.a. How does this happen & why does this happen? My own Algo has shown allocation of only 40% in Equity over past 9 quarters starting from January 2015. Does this mean that Asset Rebalancing schemes have remained static throughout this last one year period & no movement happens in these Rebalancing schemes?

Asset Allocation

Exit Strategies From Sip

Equity markets follow Business Cycles. Over past 9 years, Sensex has delivered only 4-5% CAGR. Business Cycle & Markets were at their peak during 2007-2008 period; which came to an abrupt halt due to Global Financial crisis of 2008. Market cycle just reversed thereafter & has not recovered so far in terms of Global growth or even India Growth story. Our IIP numbers are dismal, Corporate Earnings growth have not been robust, and inflation was at an all-time high till 2013-14. Couple of bad years of monsoon also did not help matters. Though Equity markets are looking expensive in the context of PE Multiples (almost 21-23 on Sensex & NIFTY); one factor that can change or rerate the same is improving corporate earnings. When the denominator of PE Formula (Market Price/EPS) viz. EPS will improve, automatically market PE will get rerated & will come down due to improving Earnings Growth going forward. Currently, Public Sector capex & spending has started; which will be followed by the Capex

Asset Allocation

Sequel to My Note On Retirement Solution

There is huge opportunity for all IFAs to start providing solution for retirement cash flow requirements & move funds from traditional mindset. Also, this strategy helps 2 generations of investors viz. a) retired senior citizens to meet their daily cash flow requirements during their lifetime alongwith an opportunity to grow their corpus (v/s eroding the same in terms of purchasing power due to impact of inflation – as explained in my first note) & enjoy their GOLDEN YEARS & b) benefit the beneficiaries by letting investments grow over a period of time.

Asset Allocation

Solutions for Senior Citizens

As soon as someone retires, first choice of investment is Fixed Deposits. Argument in favor of this investment vehicle is a) safety of principal & b) generation of regular cash flows. However, what the retired person fails to take into account is the impact of inflation on their principal amount & reinvestment risk (every time FD matures & gets repriced at interest rates prevailing at that time). Like currently, post rate cut (& prospective rate cuts in future) Bank FDs will be generating lower & lower returns to the investors & hence has reinvestment risk attached to it.