In the dynamic realm of finance, marked by fluctuating market sentiments and evolving economic landscapes, the adage, “There is always a bull market somewhere” encapsulates the essence of multi-asset investing. This sophisticated strategy, deeply rooted in the principles of diversification, involves skilfully navigating the ever-shifting markets by strategically allocating funds across a spectrum of diverse asset classes.
Multi-Asset Allocation: A Holistic Approach
Multi-asset investing thrives on its holistic approach to diversification. Allocating funds across a spectrum of assets such as equities, precious metals, international equities, and debt instruments creates a well-rounded portfolio capable of weathering diverse market conditions. Each asset class contributes distinct advantages to the overall portfolio – equities offer growth potential, precious metals act as a hedge against inflation, international equities provide global exposure, and debt instruments offer stability and a consistent source of income. This balanced blend ensures that the investor’s portfolio is not overly exposed to the risks inherent in a single asset class, thereby enhancing resilience against market volatility.
The crux of multi-asset investing lies in the concept of “macro investing,” which entails comprehending the intricate dance of asset classes over different calendar years. This macro perspective grants investors the ability to discern patterns and trends in the historical performance of diverse assets. For example, while equities may take the lead in certain years, precious metals or debt instruments might outshine in others. To illustrate, Nifty50 exhibited remarkable returns in 2012, 2014, 2017, 2021, and 2023, whereas Gold would have played a pivotal role in portfolios during 2018, 2019, 2020, and 2022. Additionally, debt investing proved crucial for portfolio stability in 2014, 2015, 2016, and 2018. Therefore, the key lies in adapting to the fluid dynamics of the market, allowing for astute allocation of investments based on the prevailing economic environment.
Micro Investing - Navigating the Nuances of Sector Rotation
While the macro perspective offers a sweeping view of the entire financial landscape, micro-investing is a focused approach that hones in on a particular sector or theme. Within the multi-asset investing framework, a prime illustration of this micro-level strategy is the concept of sector rotation. This technique involves actively managing allocations among the various sectors guided by their performance and outlook. (see Table for details).
Source: MFI 360; Past performance may or may not be sustained in future. Data is calendar year returns as on 31st Dec of the respective year
This micro-level strategy involves closely monitoring and adjusting allocations based on sector performance, enhancing adaptability in the overall investment approach. It allows investors to navigate the complexities of various sectors with nuance. Micro-investing complements the macro perspective, enabling a focused exploration of individual sectors. This adaptability is crucial in a market where conditions vary widely. By strategically allocating resources based on sector trends, investors position themselves to capitalise on emerging opportunities and mitigate risks. However, this may be a difficult task for a layman who may not have the time and inclination to study each and every sector. This is where multi-asset investing comes in handy. Here, the fund manager will do the needful on an investor’s behalf.
In its truest essence, multi-asset investing embodies the spirit of contrarian investing. This strategy goes against the conventional wisdom of concentrating on a single asset class and recognises that opportunities persist even in challenging times. By actively diversifying across various assets and adjusting allocations based on macro and micro insights, investors position themselves to outperform traditional, more narrowly focused investment strategies.
In summation, multi-asset investing transcends being merely a portfolio strategy; it represents a dynamic philosophy that embraces adaptability and resilience. By seamlessly weaving together macro and micro perspectives and diversifying across equities, precious metals, international equities, and debt instruments, investors can adeptly navigate the intricacies of the financial landscape. This approach encourages investors to embody qualities of flexibility, agility, and forward-thinking – essential attributes for success in the ever-evolving world of finance where, indeed, there is always a bull market somewhere.
The views are personal and are not part of the Outlook Money editorial Feature.