Making best investment choice in evolving markets

Instances have proven it multiple times that identifying the right themes and investing early in these provides huge returns

While there’s no set rule for investing and each have their own ways to succeed, one finds a contest among various strategies. Also, it’s proven that no single strategy continuously succeeds in ever dynamic markets. It’s said that wealth creation is achieved through a concentrated portfolio but risk management is achieved only through a diversified portfolio. This tug-of-war wouldn’t help the investors to make their mind but it’s always preferred to check their risk profile to opt for a suitable path.

Investing particularly, in equities, for long-term requires not just patience but also higher conviction to hold onto the thesis. While the market gyrations enhance the inherent risks, they also provide imminent opportunities. So, how to latch on these when presented or be there at the time of presentation in the markets. Instances have proven that multiple times, identifying the right themes and investing early in these provides huge returns. The recent experiences of renewable energy, defense, PSU (Public Sector Units), etc. have amassed investors who rode on these themes. However, a diversified portfolio wouldn’t need to be timing these at every instance.

Though, the idea of investment is for the long term, it’s always good to take advantage of the market opportunities that’re presented time-to-time and ride the cycle. This could provide an additional alpha to the portfolio while ensuring the allocation remains within the desired risk tolerance levels. The ever-evolving geopolitical situation, the ravaging war and the central banks’ actions on interest rates are providing multiple prospects along with probable pitfalls. In such scenario, an investor needs to be up on their toes to make changes accordingly, which could be stressful and difficult.

Imagine, if one could get an avenue to ensure that they end up taking advantage of the various themes evolving while adjusting accordingly. This is where ICICI Prudential Thematic Advantage Fund-of-fund comes to one’s rescue. As the name suggests it’s a feeder fund to other funds investing exclusively in various themes and sectors. This fund allocates across multiple sectoral or thematic funds depending upon the discretion of the fund manager in the sole aim to benefit from the emerging themes at any given point of time.

ICICI Prudential AMC (Asset Management Company) has a wide range of funds that serve almost all sectors and/or themes that becomes an easier task to allocate. However, the fund has the flexibility to even invest in a fund of another AMC, if they find it judicious. This flexibility protects the interests of the investor while attempting to remain relevant amid the changing trends of the markets.

The fund also invests in debt mutual funds (MF) if the fund manager believes could help provide better returns to the investor. For instance, at the inception of the fund in Feb ’19, more than a quarter of the fund was allocated to short term debt and close to 9 per cent in ultra- short-term fund taking the entire debt allocation to about a third of the fund. By the end of the year, Dec ’20, the fund added to banking and financial services with about 13 per cent, Opportunities fund to 38.5 per cent, 28.5 per cent towards infrastructure, close to 8 per cent in pharma and about 8.5 per cent in commodities fund. By Aug ’21, the fund increased the infrastructure to about 51 per cent, maintained the allocation to pharma at about 9 per cent, exports & services to nearly 10 per cent, a 5 per cent allocation to FMCG, banking & financial services at 18 per cent and a bit towards floating rate fund. The current asset allocation is close to 90 per cent, debt 3 per cent, real estate at 0.68 per cent and rest close to 7 per cent is in cash and cash equivalents.

Within the equity allocation, over a quarter of the portfolio (i.e., 26.5 per cent) is in health care fund, about a quarter in banking and financial services fund, over 18 per cent in consumption fund, close to 15 per cent in technology fund and the rest about 10 per cent in infrastructure fund. This in a way is diversified portfolio but the dynamism comes from the continuous churn the portfolio endeavors to achieve at every instance. So, this achieves two objectives at one shot.

If one were to observe these allocations, one could clearly see the fund has been agile in identifying the trends and allocating to them accordingly. The fund could change these allocations as-and-when appropriate and wouldn’t need to wait for the month-end to readjust. The consistent philosophy and performance could surely be considered in the investor’s strategic portfolios. A staggered approach would provide optimal risk adjusted returns to the investors, though, ideal for investors with aggressive risk profile. Moreover, the taxation of fund-of-funds has turned favorable for investors with the latest budget announcements.

(The author is a partner with “Wealocity Analytics”, a SEBI registered Research Analyst firm (Reg no.INH000017213) and could be reached at knk@wealocity.