A research conducted by Gary Brinston, Brian D. Singer and Gilbert L. Beebower on Determinants of Portfolio Performance found that asset allocation is the key to portfolio performance which accounted to 91.5%. This was followed by security selection, market timing and a few other factors all of which contributed only 8.5%. So, as investors what one should be most conscious about when investing is the asset allocation one follows.
Investor Actions
It is a known fact that investors tend to follow the herd mentality. When the market is at peak, looking at the stellar gains already made, investors tend to rush in and when the market corrects and as fear sets in, these very investors will start redeeming their investment from equities. Historically, this has played out in India several times over. During August and September 2017 and February and September 2018, when the market valuations were close to its peak, retail investors poured in money into the market to the tune of Rs. 16,000 -21,000 cr. On the other hand, when the market valuations were low during January and September 2013, investors withdrew Rs. 17,000 cr from the market. Similar was the case in March 2014 when investors withdrew over Rs. 13,000 cr. Such an action is not only against Buy Low, Sell high philosophy but is also one that is detrimental to one’s financial health.
What’s the Solution?
The solution lies in investing into products which will take care of one’s asset allocation needs. Further, when it comes to equity investing the strategy should follow Buy Low, Sell high philosophy. One such fund which meets both the requirements effectively is ICICI Prudential Asset Allocator Fund. The fund has been successfully delivering superior investment experience over various timeframes.
What fund does is that it helps capture the optimum allocation of Debt & Equity based on the attractiveness of one asset class over the other. The Scheme is actively managed by fund managers having expertise of equity and debt markets. More importantly, before reaching an investment decision, the fund manager would take into consideration the market valuations of both equity and debt independently because the right allocation is not only dependent on equity valuation, but also considers the opportunities that available in debt Market. Furthermore, for allocation between the asset classes an in-house valuation model which takes into consideration various macro and micro factors is being relied upon.
In effect, this fund addresses an investors’ asset allocation as per the varying market conditions deftly without any hassle to the investor. At a time when the markets are volatile given the developments globally and in domestic market, this fund emerges as one of the best options for lump sum investments. One can also consider investing via SIP into the fund, but ensure that one is invested for the long term.
Fund Performance
The tactical allocation between asset classes has helped ensure smoother investment experience over a long run. Over the past decade, when the market went through various phases such as bull, bear and a sideways market, the Nifty 50 TRI delivered 10.2% while ICICI Prudential Asset Allocator Fund delivered 12.1% that too with an equity exposure of only 41%. This means that if a sum of Rs. 10 lakh was invested in 2010, the Nifty 50 TRI would have generated Rs. 24,93,534 while the ICICI Prudential Asset Allocator Fund would have grown to Rs. 29,31,572.
Even at times when the benchmark indices were flat in terms of returns, this fund has managed to deliver double digit returns, thus highlighting how tactical asset allocation strategies are helpful.
| Particulars | 5 Year | 7 Year | 9 Year | Since Inception |
| ICICI Prudential Asset Allocator Fund | 10.8 | 13.3 | 12.3 | 12.1 |
| Nifty 50 TRI | 9.3 | 12.7 | 9.6 | 10.2 |
| Performance over Nifty 50 TRI | 1.6 | 0.5 | 2.6 | 1.9 |
| Average Monthly Net Equity Levels (%) | 33 | 41 | 42 | 41 |
Source: MFIE, NAV as on July ,31 2019. Returns (%) are CAGR
