"There can be lull in returns for next 3 yrs"

If investors keep their expectations from equity moderate and invest more through the bad times, they will make the most of what equity has to offer, Radhika Gupta , MD & CEO, Edelweiss AMC tells ET WealthAre you surprised by the market rebound? Are we well on the path to recovery?The fundamental thing about markets is that no one can predict them, and they always catch us by surprise. In March, markets fell despite strong domestic flows, on the back of pandemic concerns and huge FII outflows. At the same time, we saw unprecedented policy action globally including fiscal stimulus and an expansion of central bank balance sheets. This is a reminder that while there is bad economic news on one side, there also is a counter-balancing policy force on the other. The recent recovery has been aided by this, as well as a strong flush of liquidity. It is too early to pronounce an economic recovery. Markets generally price in future recovery, and that’s perhaps where we are today.How do you assess investor behaviour since the initial selloff and subsequent recovery?Investor behaviour sometimes goes through more ups and downs than market behaviour. The first cut in early March saw a wave of money coming in, but after March, investors broadly missed the opportunity to benefit from the last three months of recovery. These things are hard to time and even harder to emotionally execute. The heartening part of investor behaviour is that SIP numbers have held up well and investors will benefit from SIPs at lower levels. The disheartening part is the emergence of Robinhood investing not just in India but globally. I only hope investors remember to keep quality in mind while investing in MF or direct equities.What advice will you give investors disenchanted with equity fund returns?Equities have delivered in the long term despite wars, pandemics and stock market crashes. But these returns are never linear. Volatility is a feature, not a bug, in equity investing, and if you are an equity investor, you have to embrace it. I have three pieces of advice. One, invest knowing that there could be lulls of three years, where returns will pale in comparison to FDs. Second, keep expectations from equity moderate, and invest more in bad years. And finally, give the process time. Only those investors, who can withstand the worst side of equities, will experience it’s best side.Edelweiss Balanced Advantage is among the few funds in its category to have stood strong amid the downturn. How do you look at this category in terms of its role in the portfolio?We think BAF as a category can be the core of an investor’s portfolio. We live in times that require an investor to be dynamic and an investment strategy to be adaptable. Being in the right asset class at the right time determines 90% of an investor’s returns. While investors have the choice to do asset allocation themselves, it is hard to do emotionally because market timing is tough. BAFs do the job in an automated and efficient way. They contain losses in sharp corrections, and also make the investing experience less volatile. Over a cycle, the compounded performance of BAF tends to beat even equity funds, with lower volatility. The other thing about BAFs is they help manage investor behaviour. Investor returns on average are significantly less than market returns because of the behaviour gap, and this difference is magnified in market extremes when emotions run the highest. By handling negative extremes well, BAF protect us from ourselves.Edelweiss BAF has navigated the downturn and subsequent rally well. It is a unique BAF with a trend-based model—higher equity exposure in healthy markets, lower equity exposure in choppy waters, and the ability to be nimble and swift in equity allocations. In a year like 2020, where markets have seen sharp trends, the approach has worked beautifully. In March, we had equity levels of 30-40% through the crash, and have been at 65% recently, through the bounce back.Debt funds are tweaking processes after being caught off-guard by credit episodes. How are you negotiating this landscape?Our approach in fixed income has been to be quality focused and cautious. We have defined fund casings for all our debt and hybrid funds and tighter credit quality mandates are in place for each fund. We will remain in the high quality space across all funds in the future. MFs are not the space to play low credits. These strategies are better done in AIF structures, while MFs need simpler higher quality products. We have also increased transparency across our debt and hybrid funds. In this way, we will help our investors in taking better informed decisions and help build confidence.Do you see Bharat Bond ETFs as a safer alternative?Bharat Bond ETFs are relatively safer when it comes to credit quality. But they are also stable alternatives compared to duration funds. The target maturity/rolldown structure is very apt for fixed income investors who are used to FD kind of experience, which is why we brought it to Bharat Bond. We are seeing some traction in other funds that follow this kind of strategy too. Our own Edelweiss Banking & PSU Debt Fund runs a 10 year roll down strategy and invests in 10 year AAA rated Banking & PSU Bonds.How do you view gold and foreign equity in terms of long term investments?International diversification is a must but we ask investors to invest in these for the right reasons, and not just their recent performance. International investing provides exposure to uncorrelated assets which reduces portfolio volatility and also provides hedge against rupee depreciation. You also get to access to some of the best companies.Today we have the widest basket of international funds which covers almost 80% of the world markets through six funds. Our view on gold is similar—buy it as a diversification tool and part of the asset allocation.

from Economic Times https://ift.tt/2EQp6zm