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Next 15-20 minutes…
- How do Indian investors look at Equities
- Holistic approach to Equity Allocation
- Investing sans Emotions
Equities An Asset Allocation Perspective CIFA 2015. 13 th February, - - PowerPoint PPT Presentation
Equities An Asset Allocation Perspective CIFA 2015. 13 th February, - - PowerPoint PPT Presentation
Equities An Asset Allocation Perspective CIFA 2015. 13 th February, 2015 Next 15- 20 minutes How do Indian investors look at Equities Holistic approach to Equity Allocation Investing sans Emotions How do Indian investors look at
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How do Indian investors look at Equities
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Current Investment Pattern
- Underinvested in Equities
- Equities investments are mostly tactical as opposed to
strategic
- Greater emphasis on products rather than goal
- rientation
- Gaps in investor risk profiling
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Holistic approach to Equity Allocation
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Equity holdings vary significantly across the globe
- Social, political, and tax environments
- U.S. institutional investors average 45% allocation in
equities
- In the United Kingdom, equities make up 72% of
assets
- In Germany, equities are 11%
- In Japan, equities are 24% of assets
- India ~5%
Source: For India; Karvy India Wealth Report 2014
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Total Asset Perspective to Equity Allocation
Illustration with Example Current Assets 10 L Equity Investment 5 L Debt:Equity Mix 50:50
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Total Asset Perspective to Equity Allocation
Illustration with Example Total Assets 100 L Equity Investment 5 L Debt:Equity Mix 95:5
Source: Based on “Human Capital” concept of Robeco, one of the oldest provider of Pension Solutions in Europe
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Investing sans Emotions
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Investors dilemma
- Investors tend to follow the trend and chase the
most “hot” asset class
- Asset classes follow different cycles over different
time periods
- Two important decisions:
- Which is the right asset class ?
- Is this the right time ?
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Returns of Retail Investors – US experience
Source: Dalbar, for the 20-year period ending 12/31/12.
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Sensex: 35 years history
Source: Motilal Oswal
29 35 26
- 3
16 44 62
- 11
- 22
79 9 50
- 47
66
- 14
3 16
- 4
34
- 28
- 4 -12
83 16 74 16 20
- 38
81 11
- 10
8 19 23 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
267
Sensex Annual Return
CAGR since inception: 16.7%
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It is Equity and Debt and not Equity or Debt
- Equities offer best returns over the long term
- But comes with a high degree of volatility
- Debt gives steady returns
- But barely beats inflation
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Solutions……..Asset Allocation
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Importance of Asset Allocation
- Asset classes can be volatile
- Asset allocation helps in reducing volatility and generate
superior risk adjusted returns
- Helps investors keep a long-term perspective and avoid
knee-jerk reactions (removing emotion out of investments)
- Average Stock and Bond investors have underperformed in
their quest of chasing superior returns from time to time
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Life-cycle of various asset classes
Source: Bloomberg. Rebased to 100
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Determinants of Portfolio Performance
Asset Allocation 91.5% Other 2.1% Market Timing 1.8% Security Selection 4.6%
Source: “Determinants of Portfolio Performance II, An Update” by Gary Brinston, Brian D. Singer and Gilbert L. Beebower, Financial Analysts Journal May-June 1991 For illustrative purposes only. Not indicative of any specific investment.
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Asset Allocation and Investment Policy
- An investment strategy is based on four decisions
1. What asset classes to consider for investment 2. What normal or policy weights to assign to each eligible class 3. The allowable allocation ranges based on policy weights 4. What specific securities to purchase for the portfolio
- 85% to 95% of the overall investment return is due to
the first two decisions, not the selection of individual investments
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Factors To Consider
- Investment objective (e.g., retirement)
- Time horizon for a goal (e.g., life expectancy for
retirement)
- Amount of money you have to invest
- Your risk tolerance and experience
- Your age and net worth
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Asset Allocation Model
Market Inputs
P/E Level Bond Yield
Individual Inputs
Investment Horizon Risk Tolerance Economic Outlook
OPTIMIZER
Investor Asset Mix Realized Returns
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Model Output
17.5% 66.1% 142.6% 16.4% 63.2% 137.2% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 1 Year 3 Years 5 Years
Absolute Returns
Asset Allocation Model Equity 85.9% 155.6% 196.7% 54.9% 94.7% 117.2% 0% 50% 100% 150% 200% 250% 1 Year 3 Years 5 Years
Risk Adjusted Returns
Asset Allocation Model Equity Source: Internal Workings
Period Equity S.D. Asset Allocation Model S.D. %age Drop in S.D. 1 Year 29.92% 20.33%
- 32%
3 Year 66.74% 42.46%
- 36%
5 Year 117.07% 72.51%
- 38%
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Thank You
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Disclaimer
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
The information used towards formulating the outlook have been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information and assume no financial liability whatsoever to the user of this document. This document is strictly confidential and meant for private circulation only and should not at any point of time be construed to be an invitation to the public for subscribing to the units
- f Canara Robeco Mutual Fund. Please note that this is not an advertisement. The