The Mutual Fund Show | Building A Long-Term Portfolio | BQ Prime
#BQMutualFundShow | Want to build out a MF portfolio for the rest of the decade? Is it wise to do so?
Himanshu Kohli and Shalini Sekhri share how they would go about it. #BQLive
Himanshu Kohli and Shalini Sekhri share how they would go about it. #BQLive
Category
🗞
NewsTranscript
00:00 Welcome to the Mutual Fund Show.
00:01 I'm Neeraj Shah.
00:02 Over the next 20 minutes, we'll talk
00:03 about a very important aspect of mutual funds.
00:05 In fact, I call it very important also,
00:07 because there's so many people who've
00:09 written to us about what should they
00:10 do with regards to this particular aspect.
00:12 And that aspect is that the markets are buoyant.
00:15 And more importantly, when people
00:17 are talking about how the decade may be belonging
00:19 to their country, and in this case, our country, which
00:21 is India, can they build a portfolio, a mutual fund
00:25 portfolio, which can last that whole time period?
00:29 Because not everybody has the time
00:30 to look at the portfolios every single day.
00:32 So we tell everybody that if you don't have the time,
00:34 it's best to approach even this aspect
00:36 through an advisor who can keep on hand-holding you
00:39 through the journey.
00:40 But for DRI investors who might want a long-term portfolio,
00:44 is that an option in a market which is so dynamic?
00:46 Well, let me not try and answer that and ask this question
00:51 to two experts who probably do this for a living day in,
00:53 day out.
00:54 Shalini Sekri, she's CEO of Infinity Asset Advisors.
00:57 And Himanshu Kohli, co-founder of Client Associates,
01:00 joins us right now on the show.
01:01 Both of you, thank you so much for taking the time out.
01:04 And I guess that it won't come as a surprise, this topic,
01:07 because you must be getting this question asked too, Shalini.
01:10 I'll start with you.
01:13 Is this something that is top of mind of clients,
01:16 build out a portfolio for the long term?
01:20 Yes, absolutely.
01:21 We are, I think, in a time where every day
01:23 is a new historic high.
01:25 And I think we're speaking on that very special day,
01:27 as we were just discussing before this call started.
01:31 We would all love to be long term investors.
01:33 Every client we speak to say they do
01:34 want to be long term investors.
01:36 But I would actually like to start
01:38 by asking myself and everyone on this panel,
01:41 that do we think it is possible to buy and forget
01:45 your investments for 10 years?
01:47 And I think that's where really, perhaps,
01:49 the views of both of us will come in today.
01:53 Now, while I do believe that every investor will
01:55 have a different asset allocation,
01:56 depend on age, lifestyle, current financial health,
01:59 goals, risk appetite, it would be very simple for an advisor
02:04 to say that, OK, for a conservative investor,
02:07 let's do, say, 30% equity, 60% debt, 10% in gold, fill it,
02:12 shut it, and forget it, or maybe just keep adding passively
02:15 to SIP.
02:16 Or similarly, for an aggressive investor,
02:18 that should we do 70% equity, 25% fixed income, 5% in gold,
02:23 let's forget about it.
02:25 Honestly, Neeraj, unfortunately, I
02:28 think the answer is more complex and individualistic than that.
02:31 And I believe we really have no choice
02:33 but to take a goal-based approach, not just one that
02:36 is goal-based, but which requires a regular review.
02:40 And I think that's where really structured financial planning
02:43 comes in, discipline comes in, looking at your portfolio
02:48 and your goals come in on a regular basis.
02:50 And honestly, if the plan is right,
02:54 then the yardstick really to measure the success, I believe,
02:57 is not whether the investment outperforms its benchmark,
03:01 but rather how well it is able to help the investor meet
03:04 their personal goals.
03:05 And that, to my mind, is truly a successful investment plan.
03:09 That, unfortunately, requires some discipline and some work.
03:13 Yeah, well, some discipline, some work.
03:15 Not everything can be done on this show.
03:16 So I'll try and do what I can do best on the show
03:19 and try and understand that if somebody were still to do it,
03:22 how do they go about doing it, which
03:24 is the best possible shape?
03:26 Let's put it this way, Shalini, or as the lesser of the two
03:29 evils, if you will.
03:29 But, Himanshu, let me get you in on this conversation first.
03:32 To your mind, and your answer could be completely different.
03:35 But is it possible for somebody who wants this as a goal,
03:38 that I want to make a portfolio which can last me
03:41 for the next six, seven years, is it possible to do it?
03:46 So I would agree with Shalini, what
03:49 she mentioned, the discipline.
03:52 You know, Neeraj, there are four things which impact
03:55 the success of any investor.
03:58 What should be my strategic asset allocation, market timing,
04:03 product selection, and luck?
04:07 These are the four things which impact
04:09 the success of any investor.
04:11 As per various studies which have happened,
04:13 empirical data on developed markets, developing markets,
04:18 91% success comes if your strategic asset allocation
04:21 is correct.
04:23 Market timing, product selection, luck
04:25 contributes less than 10% towards the success
04:29 of an investor.
04:31 Unfortunate part is, most of the investors in India,
04:35 globally, they just keep on spending their energy's time
04:39 on when to enter, when to exit, which product to buy,
04:42 and luck to support them.
04:44 And they forget the big picture on what
04:46 should be their strategic asset allocation.
04:49 So what happens through strategic asset allocation
04:52 is the point which Shalini was mentioning.
04:54 It brings in a huge amount of discipline.
04:57 And that is something where experts like us
05:01 comes into picture because people just
05:03 talk about returns.
05:04 But there's an other R, which is the risk part of it.
05:08 And most important, the correlation or behavior
05:11 of one asset class versus the other asset class,
05:14 one index versus the other index,
05:15 one market versus the other markets.
05:19 So that is something which is--
05:21 we believe there is a lot of science which
05:23 goes behind construction of the portfolio, basis of the profile.
05:28 And I believe, let's say, a median age profile, 35,
05:32 40 years, if they have a really, let's say, 85, 90 years
05:36 of lifespan, if they just preserve and grow at 7%,
05:41 1 rupee or 1 crore can be 30 crore rupees
05:45 if they compound it at 7%, which is conservative.
05:49 But if they get into a moderate profile, which
05:52 is a combination of different classes, same period,
05:55 50 years, 35 years old, invest with a 50-year standard
06:00 for time horizon, it can be 300 crores.
06:03 And if they get into a very aggressive mode, which
06:05 is getting into businesses, unlisted businesses,
06:08 it compounds it at 16%, 17%.
06:10 It could be 3,000 crores.
06:13 But what determines whether one should be conservative,
06:17 moderate, or aggressive?
06:18 It's actually the financial plan which needs to be drawn.
06:21 What is a need-based wealth?
06:22 What is a surplus wealth, which is for the next generation?
06:26 So this is something which we get into and come up
06:29 with a plan over there.
06:31 Got it.
06:32 Now, viewers, standard disclaimer,
06:33 we'll talk about mutual funds on the show.
06:35 And lest you get too excited about making
06:38 that 1 crore, 3,000 crores by use of private businesses
06:41 or private investments, it's a very difficult task.
06:44 That is exactly the opposite of what
06:46 we'll try and do on this show today, which
06:48 is try and understand the ideal mix in a passively owned
06:52 or passively held mutual fund portfolio.
06:55 But yes, I think the numbers that Himanshu spoke about,
06:58 they might well be true if you're
06:59 able to strategically choose the right kind of investments.
07:03 As is the want of this show, we'll talk about funds.
07:05 So Himanshu, I'll come back to you.
07:07 I just want to understand that we're
07:10 trying to cater to the viewer who
07:13 is wanting only mutual funds and not
07:15 other things in the portfolio.
07:17 Or the larger part of this thing is the mutual funds, right?
07:19 So if somebody wanted to build out something,
07:23 it could be reviewed periodically.
07:25 The person should ideally have an advisor
07:27 who can handhold and change the dynamics of the portfolio
07:30 at various points of time over the next seven-year cycle
07:33 as well.
07:34 But let's say somebody wants to know
07:36 what should an ideal mix of the portfolio
07:38 at this point of time be if the person is designing
07:41 a portfolio meant for the next seven years.
07:44 What would you say?
07:47 MF portfolio.
07:49 Sorry?
07:49 Mutual fund portfolio.
07:51 Mutual fund portfolio.
07:52 So let's say there is a moderate profile of the investor.
07:55 Moderate profile could focus on maybe 60% growth,
07:59 40% preservation, or 70% growth, 30% preservation
08:03 if it's moderate plus.
08:05 Now, basis that one can then get into a combination of not only
08:10 debt and equity, but certain other asset classes also.
08:14 So let's say debt alternatives could be another.
08:16 Equity alternatives could be another one.
08:19 Hybrid could be another one.
08:20 Gold could be another one.
08:22 So combining these asset classes, this is the profile.
08:26 One can actually create a portfolio.
08:28 So there could be two approaches.
08:30 One is I will just get into balanced funds
08:33 with a seven years view.
08:35 And I'll get maybe double digit, low double digit returns
08:37 from my portfolio.
08:39 But there could be volatility in between.
08:41 But other better approach could be
08:43 where I see the correlation between one asset
08:46 class and other asset class.
08:48 Maybe bringing in 20% gold.
08:50 Maybe bringing in 20% fixed income.
08:52 Maybe bringing in 40% equities.
08:55 And maybe bringing 20% towards alternate asset classes.
08:58 That can also give me a double digit returns
09:01 with a far lower volatility.
09:03 So investor could look at combination like this,
09:07 or someone who is getting into a regular savings.
09:12 Systematic investment plan into mutual funds
09:15 depending on the risk profile.
09:16 So equity could be one which is a preferred choice.
09:19 But if someone doesn't want volatility,
09:21 too much volatility, which bothers them,
09:24 then maybe one can get into a combination of equity
09:26 plus that kind of strategies, balanced advantage funds.
09:29 And systematically build a portfolio.
09:32 - Okay, sorry, just one follow up before I go to Shalini.
09:34 Himanshu, are you saying that you would be comfortable,
09:37 if you were this person who is between 30 and 40,
09:40 moderate risk profile, 30 years of earning lifespan
09:43 in front of you, would you build out a seven year portfolio
09:46 with only equity funds?
09:48 - If it's systematic, I'm very comfortable.
09:52 If it's systematic, I'm very comfortable building it
09:55 through a systematic investments into equity mutual funds.
09:58 But if it's lonesome investments,
10:00 then I would like to have a portfolio allocation approach,
10:04 which is what I mentioned, combination of equities,
10:06 combination of hybrids, combination of fixed income,
10:09 debt alternatives, equity alternatives.
10:11 That is how I would like to build up
10:13 with maybe 10% of gold also on top of it.
10:16 - Got it, thanks for that clarification.
10:17 Now, Shalini, the same question to you.
10:19 I heard you at the onset,
10:21 that it's virtually impossible to do that to your mind.
10:24 I'm still putting a gun to your head,
10:25 and I'm telling you, here's a client,
10:27 she's listening to the show right now.
10:28 She's wanting to build out something like this.
10:30 If you were to design it today, what would your advice be?
10:34 - So the outset news, I'd just like to highlight
10:39 that if you look at the last 10, 11 years
10:41 of our various asset class return profile,
10:45 every year has actually thrown up a different top performer.
10:49 2022, which was not short of excitement by any standard.
10:52 I'm sure a lot of viewers would be very surprised
10:54 to hear that gold, which we just think of
10:57 the safe hedge part of the portfolio,
10:59 was actually the best performing asset class
11:01 with a 14% return.
11:03 And equity just gave 4%, fixed income gave you 3%.
11:08 So to your question on whether should one build
11:11 a completely equity portfolio,
11:13 while obviously in the long term,
11:14 the numbers are very clear that it gives
11:17 good risk adjusted return.
11:19 The fact remains is that I strongly believe
11:22 that asset allocation will be very important.
11:25 Every bucket would be required
11:26 because there's just absolutely no telling
11:29 in Russian roulette as we seem to see in our markets,
11:32 which asset class will be top of the heap.
11:34 So I do believe that mutual funds
11:36 do have a very wide spectrum of strategies.
11:39 It will easily enable a client to be able to build out
11:42 a very diversified portfolio in line with,
11:46 you know, wanting to be a long term investor
11:48 and also meeting his life goals.
11:50 And you can see that you have mutual funds
11:52 across different asset classes or equity, debt, hybrid,
11:55 you can match your investment goal by doing a growth
11:58 or an income or a tax saving fund or a fixed maturity fund.
12:02 You can look at a style, right?
12:03 So now there's this huge discussion on that,
12:05 do we look at active mutual funds versus passive?
12:08 On the active side, what I would like to point out
12:10 is that as per my analysis,
12:13 almost 90% of large cap mutual fund managers
12:17 have underperformed their benchmark
12:19 on a one, three and five year perspective.
12:23 What that means is perhaps at least
12:25 for the large cap equity fund category,
12:28 there is a very strong case to look at perhaps
12:31 passive funds, which are the index
12:33 and the ETF equity fund category.
12:35 So if I were to just quickly jump ahead,
12:37 what do I think we can advise an investor
12:41 like the type that you suggested,
12:43 a moderate investor looking for a regular steady
12:47 kind of a portfolio with risk minimized.
12:50 I would say that a client like this should look at say,
12:53 debt at about 40%, equity maybe 30%, balanced and hybrid,
12:58 which gives you a combination of equity and debt about 20%
13:02 and maybe gold at around 10%.
13:04 Within equity itself, one can think of maybe large cap
13:08 index funds, as opposed to active funds at maybe 30%,
13:12 multi-cap funds around 40, 50%
13:15 and the rest in mid and small cap.
13:17 I believe this would dull in volatility
13:19 and would still deliver good inflation beating returns
13:24 to an investor, keeping their blood pressure low
13:26 and enabling them to see some return in their portfolio
13:29 on year on year.
13:32 So that's really my perspective.
13:34 - Shalini, a question that might come in
13:36 and I'll of course follow that up with the question
13:38 to Himanshu in the same,
13:40 is because diversification is so important
13:42 and there are fund managers and mutual fund CEOs
13:45 who are coming and talking about the benefits
13:47 of having a multi-asset fund over a longer period of time,
13:50 but in the client is not necessary,
13:53 needing to take any kind of calls on when to divert,
13:56 when to move from one asset to the other
13:59 because the fund manager does the job.
14:00 How important would that be for a long-term portfolio?
14:04 - So I would think that to some extent
14:07 is completely leaving it to the fund manager
14:11 in a way that it might not exactly match
14:13 what should be your asset allocation.
14:15 We're also seeing a situation where
14:16 in order to make it tax efficient,
14:19 we're seeing a fairly large percentage
14:21 that's going into equity, right?
14:22 To be able to get a big equity taxation benefit.
14:26 And as a result, perhaps the percentage
14:28 to something like a gold,
14:30 which might merit a larger allocation
14:32 for certain kinds of investors can be quite small.
14:35 So our view is that in years where say,
14:37 for example, 2022, it's more about setting it
14:40 out of the park.
14:41 Does it make sense to kind of be constrained
14:43 by some of these?
14:44 So while I do know that I wanted to fund managers
14:48 where the constraints are not that much,
14:50 I would say in general as a category,
14:53 I believe that even with a little bit of help and advice
14:56 and even one's own research,
14:58 a client will be able to create a more suitable,
15:01 tailored asset allocation for themselves.
15:04 That's what I would do if I was the investor.
15:07 - Himanshu, the same point to you as well,
15:09 multi-asset funds and their presence,
15:11 because both of you have spoken
15:12 about how to allocate differently.
15:13 If a person is confused and not wanting
15:15 or not able to do that, still wants to be a DIY investor,
15:18 would multi-asset funds be an answer or not quite?
15:21 - So I would say someone who doesn't have the luxury
15:25 of appointing a wealth manager
15:28 or hiring a wealth manager,
15:30 multi-asset fund actually works out very well for them.
15:35 And reason is sometimes we do not get the time
15:38 to look at the portfolio.
15:40 Sometimes there's an inertia,
15:41 sometimes there is a cost angle which comes into picture,
15:44 whether it is taxation, whether it is entry, exit, loads,
15:48 all those things.
15:49 So multi-asset actually works out fairly well.
15:52 And also Neeraj, if you see hybrid funds,
15:54 which have just followed maybe two third equities
15:56 and one third fixed income,
15:58 historically, they have not only reduced
16:00 the standard deviation,
16:01 but they've also created half to 1% alpha
16:04 compared to a static portfolio of two third equities
16:07 and one third debt.
16:08 So I would say someone who cannot rebalance,
16:11 someone who does not have the luxury,
16:13 can actually look at a multi-asset portfolios.
16:16 Someone who has, they then can actively manage it
16:20 along with the wealth manager and look at those options.
16:24 - Shalini, just one last question on this to you.
16:27 And I think Himanshu made an important point
16:29 that he's comfortable for an SIP investor
16:32 over the longer term to have a pure equity portfolio.
16:36 Now, history shows us that over seven years,
16:38 the volatility evens out
16:39 and the returns on equity portfolios in India
16:41 at least have far outstripped anything else.
16:44 For even a risk-averse investor,
16:47 could that be an option?
16:48 Because typically people will say,
16:49 "If you're risk-averse, maybe put in other asset classes."
16:52 But history shows that equity funds over a long period
16:56 have given tremendous returns
16:58 while being equitable on risk, so to say,
17:00 even if not in spirit on paper, but in reality.
17:05 - So I absolutely agree with both Himanshu and Neeraj
17:11 that for a long-term investment--
17:12 - Just putting it to you.
17:14 No, no, please continue.
17:16 - So, sorry.
17:18 So what I was saying was that I believe that averaging
17:21 out through SIP, as Himanshu pointed out,
17:24 is a wonderful tool to take advantage
17:27 of the ups and downs in the market.
17:29 The other real risk mitigant,
17:31 if risk can have a mitigant, then why not?
17:35 I think one can certainly look at equity,
17:36 and I think the best risk mitigant is time.
17:39 And there's enough analysis all around to show that
17:41 in general, if you look at a five-year holding period,
17:44 there are almost no periods
17:46 where a client who's had a five-year horizon
17:48 has actually walked away with negative returns from equity.
17:52 So I would say risk, if it can be mitigated
17:54 by staying invested for longer periods,
17:57 is certainly a great way to go.
17:59 And enjoy the returns that do come
18:01 with equity as an asset class.
18:03 - Fair point.
18:04 Final question, and I'm just moving on topics now,
18:07 because this is the other thing.
18:10 So actually, on this, both of you,
18:12 thank you so much for giving us some very valid details
18:15 and some good data around the portfolio construction
18:18 as well for everybody who's listening into this.
18:20 This may be a good way to construct a portfolio
18:22 for individual funds.
18:24 I think because individual funds would vary
18:25 depending on your risk appetite,
18:26 it's best to have a financial advisor
18:28 who can give you the advice on the same.
18:29 So urge you to do that.
18:32 Now, so many of you have written to us
18:34 about healthcare funds as well.
18:36 Let me try and see if that is something
18:38 that our guests can give us some insight on as well.
18:40 Himanshu, I'll start with you on this.
18:42 And I believe you don't normally advocate
18:46 sectoral or thematic funds.
18:48 Still wondering if you have a view on healthcare funds
18:51 because the sector is coming of age.
18:53 A lot of people on the equity side
18:54 are talking about getting into that bucket.
18:57 And a lot of people have queries about
18:58 what kind of healthcare funds to get into.
19:00 - So Neeraj, it's very important to follow
19:04 a core and a satellite approach
19:07 while you're also selecting your mutual funds portfolio.
19:10 So let's take a simple equity asset class.
19:14 20% large caps, 40% multi caps,
19:19 30% mid and small caps,
19:21 and 10% could be a sectoral fund or a contrarian fund,
19:26 which could be coming to picture.
19:29 I have seen sometimes a sectoral fund
19:32 because the fund manager has to pick up 30, 40 stocks
19:35 because of diversification.
19:37 Even if there are eight to 10 stocks, which are very good,
19:40 balance 30 comes more like a baggage over there.
19:44 And the risk return matrix doesn't justify.
19:48 So maybe taking that 10% kind of a contrarian view,
19:53 which could be heavy on our healthcare side,
19:56 could be a good approach because last three years,
19:59 if you see, benchmark index has compounded by 25%,
20:04 while healthcare index has compounded by 16 and a half%.
20:07 So if averages has to go all good,
20:10 maybe healthcare will also do catch up
20:13 in the next three years or four years.
20:15 And if someone is entering with that kind of a time horizon,
20:17 it makes sense to be slightly overweight
20:19 compared to what the index of healthcare is.
20:22 So there I would say maybe getting into a contrarian fund,
20:26 which has reasonably higher exposure
20:28 or an opportunist one,
20:29 which has a higher exposure towards healthcare
20:32 could be a good option.
20:33 But if one doesn't want to apply too much mind on this,
20:36 maybe then taking up a simple healthcare fund,
20:39 like SBI is a fairly stable season,
20:43 has given one of the best highest returns per unit of risk
20:46 over a period of time,
20:47 could be looked at as a fund within healthcare.
20:51 So I would not recommend going for a pure health fund
20:56 or pure sectoral fund because of the challenges
20:58 which I mentioned over there.
20:59 But if someone still wants to get over there,
21:03 better is to go through a contrarian strategy.
21:06 If not, then maybe just selecting
21:07 one of the most stable options,
21:09 only to a smaller extent, which is a satellite,
21:11 not the portfolio of theirs.
21:14 - Okay, very valid points.
21:15 Thanks Himanshu for that.
21:16 Shalini, the same question to you, healthcare.
21:18 - Right, so I think there's no arguing that with COVID-19,
21:22 that's been a sector that's front and forward.
21:25 Last few weeks have been flooded with news flows,
21:28 such as say, large insurance companies
21:30 are buying healthcare stocks,
21:32 foreigners are buying a lot of healthcare stocks in India.
21:35 And as a result, clearly we're seeing some tailwinds here.
21:39 Back I was looking at the one year, three year returns
21:42 for some of the best performing funds,
21:43 all at a stellar 20% plus, even on a one year basis,
21:47 if I look at the top quartile.
21:49 We'd still be surprised to know that this by no means
21:52 is one of the best performing sectoral funds or sectors.
21:57 So there are many more, which have done far better than this.
22:01 So I think therein lies the rub,
22:03 that in India where you see so much sector rotation
22:07 every year, where every year is throwing up
22:09 very different winners and losers,
22:11 and the divergence between the worst performing
22:14 and the best performing sectoral fund is huge.
22:17 It's quite hard, I would think, for a lay person
22:20 to be able to take the relevant call.
22:23 That having been said, I think intuitively,
22:25 we all understand that healthcare,
22:27 which today is not just pharma,
22:29 but a lot more sectors such as hospitals, et cetera,
22:34 certainly have structural tailwinds.
22:36 And I think one will make decent returns there.
22:39 And you could look at a small allocation in,
22:41 as Amantia said, the SBI one,
22:44 or perhaps DSP has a good stable portfolio,
22:48 Mire Asset Healthcare.
22:50 So there are these three or four larger stable funds
22:53 which are doing well.
22:54 But again, to point out,
22:55 these are certainly not the best performing sectoral funds
22:59 when I throw in all the other sectoral funds
23:01 other than healthcare as well that exist today.
23:04 - Just that the number of queries on healthcare funds
23:06 are so high, it's important to bring that up
23:08 in today's show. - Certainly.
23:10 - But Shalini, Himanshu, it's been a pleasure
23:12 talking to both of you.
23:12 Thank you for taking the time out
23:14 and giving us your thoughts on the Mutual Fund Show.
23:17 - Thanks for having us. - Thank you so much.
23:18 - Bye. - Thank you so much.
23:19 - It was a pleasure. - Thank you.
23:21 - And viewers, thanks for tuning in
23:22 to yet another episode of the Mutual Fund Show.
23:24 (upbeat music)
23:29 (upbeat music)
23:32 (camera shutter clicking)