Canara Robeco has opted for an equity oriented version for its new Multi Asset Allocation Fund (min 65% gross equity exposure), which gives investors a better tax outcome without significantly crimping fund manager’s ability to calibrate equity exposure, which Shridatta believes will be the largest determinant of allocation alpha.
Use of arbitrage can mean an effective net equity allocation between 35% and 80%. Equity over the long term (especially actively managed equity) has significantly outperformed other asset classes and should therefore have a meaningful allocation in a MAAF at most times - except when valuations go to extremes.
The initial portfolio will likely be around 50% net equity, 15-18% arbitrage, 15-18% precious metals and the balance in debt.
The equity portfolio will likely have 30-40 stocks with a flexicap orientation. Stock selection will play a significant role in driving overall alpha in this product – which is unlike some MAAFs that rely very heavily on asset allocation only to generate alpha.
Precious metals allocation will start of with gold and may include some amount of silver at an appropriate time.
Debt allocation will have the hallmarks of the fund house’s safety first approach towards fixed income: no credit risk. Expect moderate duration as debt is seen as a stabilizer and not a alpha contributor in this new fund.
Shridatta reiterates his market outlook which he shared in a recent WF interaction: expect time correction for a couple of quarters, look for signs of earnings growth coming back on a broad based manner to get excited about near term market prospects.