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Money Guru | Sticking to asset allocation better than taking market calls

Money Guru | Sticking to asset allocation better than taking market calls
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First Published: Tue, Nov 01 2011. 08 45 PM IST

Vishal Kapoor, general manager (wealth management), India and South Asia, Standard Chartered Bank.
Vishal Kapoor, general manager (wealth management), India and South Asia, Standard Chartered Bank.
Updated: Tue, Nov 01 2011. 08 45 PM IST
Today when you walk into your local bank branch it’s not only deposits that are on your mind; wealth management services garner a fair share of your time. Standard Chartered Bank, an early mover in the Indian wealth management industry, today boasts of over Rs 10,000 crore assets under management. Vishal Kapoor, general manager (wealth management), India and South Asia, Standard Chartered Bank, talks to us about how to handle investments and portfolio in times of volatility. Vishal has earlier served the Financial Planning and Standards Board of India as a director and is a member of several industry working groups constituted by regulators and industry associations.
How are clients reacting to the current volatility? Which asset class do they prefer the most?
Vishal Kapoor, general manager (wealth management), India and South Asia, Standard Chartered Bank.
It may be unfair to bucket all customers into one group. Dividing into three groups at a broad level, for the first time or relatively new investor, there is some scepticism about risky assets and more interest in fixed income and gold. In this group, risk appetite has been quite subdued.
Let’s take the second group which has gone through this kind of volatility in equities before. They have learnt from experience and are holding steady; they are drawing from their earlier reactions and are not panicking.
The third set is looking to make the most of the opportunities that the current market has thrown up. The Chinese say the other side of risk is opportunity. This could be across asset classes and these are what sophisticated clients are looking for.
Approximately how many investors (percentage-wise) have taken well to investing in risky assets?
A percentage is difficult, but if we talk about volumes, in August, we saw a significant increase in the net sales of equity and related products. If investors have a short-term view then they could be cautious, but an increasing number of investors are of the view that with every fall, there is an opportunity to invest for the long term. Industry data also shows that net sales in equity funds in August were a significant number.
Is this a good time to rebalance? Is waiting for events to happen a good strategy at this time?
Many investors tend to marry rebalancing with short-term views. If there is a sense of a lot of short-term volatility to come, then they try and finely time their rebalancing decision. Most advisers won’t subscribe to this as there is no end to how finely you can time the market especially with respect to your core allocation decisions. But people are worried about certain key indicators—domestic and global—so it is understandable that many want to wait and watch. To many, environmental uncertainties don’t seem to be going away, so the trigger for investing or rebalancing is also not as apparent. But if someone wants to time the market so finely for their core portfolio, it is a risk because markets can be very unpredictable. One way to tide over volatility for those who don’t want the risk is to rebalance their core portfolio more actively.
What about gold? It is a store of value, but when markets are so uncertain does it make sense to buy more than the traditional 5-10% portfolio allocation?
Investing in gold pays no interest or dividends, which is a risk. So if prices start to correct from here, despite it being a store of value, it can destroy value without any other cash flow. On a relative basis, other asset classes generate a return, which gold doesn’t.
For Indians, it is a traditional form of savings. There are fundamental reasons why it may do well in the next couple of years. The proportion of gold held by some Asian central banks is very low as compared with western companies, so there is demand there. Moreover, individual demand from China and India is high. However, even so no additional return gets generated from gold. We continue to recommend 5-10%, may be going up a bit more. Practically, it is very difficult to assess how much gold an investor has as the jewellery bit is not known. We only look at the monetized portion. Here there is still a lot of room, but without knowing what’s already in the locker, this is an inaccurate measure.
Do you feel, broadly speaking, this is a time for clients to get more aggressive about risk when they look at asset allocation?
We don’t change strategic allocations very often. The question really is whether to rebalance now or not. Our three-month view on equities is still underweight to neutral; our 12-month view is more bullish. This is on account of our view on domestic interest rates coming off and also global economic slowdown leading commodities lower and, thus, inflation lower. Short-term uncertainties will keep volatility high. Recent data shows that sticking to asset allocation calls is better than taking market calls and a lot of clients are now realizing that.
We always talk about the long term when we look at risky assets like equity. In the last four-five years, some systematic investment plan investors may have also lost out if they didn’t invest in the best funds. How long is long term?
There is only empirical data to define long term. Data says, your probability of making positive returns is very high if you invest for at least five years. This study has been done across geographies. There could be market phases where point to point returns even in the long term may be negative. In recent times owing to the large variability in returns, we have found that tactical views matter too. If you overlay your strategic call with product-linked or asset class-linked tactical view, it can enhance your returns over a period of time.
lisa.b1@livemint.com
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First Published: Tue, Nov 01 2011. 08 45 PM IST