Markets have cheered the ceasefire announcement with a huge rally. However, given the history of Pakistan’s dubious actions, one shouldn’t get over-excited.
Indian economy is on the right track, corporate profit growth is now beginning to look up again – there’s every reason to remain invested in equity as per your strategic asset allocation. However, ceasefire should not be a driver for a tactical incremental allocation.
Markets move in cycles – understanding the stage of a cycle is critical to making wise investing decisions. The more macro you go with your cycles, higher is the probability of getting your calls right. More micro you get, many more near term variables come into play that can derail your thesis.
Focus first on the economic cycle, the business cycle and the credit cycle. Understand these well, position your portfolio to align with these macro cycles.
Cap cycles, factor cycles and thematic cycles come next with sector cycles and then sub-sector cycles getting into the more micro spaces.
The most robust slice of a portfolio would be one that brings together large caps with factors like quality and low vol. On the other end of the spectrum will be small caps and growth factor.
An ideal core equity portfolio should have a good blend of cap-based funds and factor-based funds, with each fund being actively managed in a manner that optimizes stock selection in alignment with macro cycles (economy, business, credit).
Satellite portfolios around this core can be sector funds.
Bajaj Finserv MF has created “The Power of 3” – a basket of 3 funds it seeks to position as ideal to constitute the core portfolio of any equity investor. Each of these picks a cap based format, then overlays it with a style (factor) tilt and follows a strategy aimed at enhancing the benefits of the style while reducing the downsides of each style. This “Power of 3” encompasses:
- - Its Flexicap Fund – growth style tilt –megatrends strategy to fine tune growth stock picks that are well placed to ride multi-year megatrends
- - Its Large & Midcap Fund – quality style tilt – moat strategy to ensure stock picks have sustainable business models that can maintain high return ratios for longer periods of time
- - Its Multicap Fund – value style tilt – with a strategy that goes beyond valuations and considers over/under market reactions (contra orientation).
The fund house says this pack of 3 funds as core holdings in investor portfolios gives the right mix across cap sizes, factors/styles and strategies to enable long term wealth creation.
Satellite overlays around this core should ideally be sectoral and may need to be reviewed annually. For this year, Nimesh continues to advocate Healthcare as an ideal satellite holding around the 3 core funds.