Asset Allocation & Periodic Rebalancing

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Successful Wealth Management firms use Asset Allocation along with time-to-time rebalancing as a powerful tool to improve portfolio returns without unduly increasing the risk levels.

The above concept leverages some basic though elegant concepts:

  • Indians have 25 to 30% of their networth in Gold! However the CAGR returns for Gold are starting to drop
  • Prices in India are inflated by 10% due to the imposed tax – this tax is expected to be removed and will further erode the price of gold
  • To a large extent Gold prices are linked to central bank policy regarding their reserves

A diversified portfolio across multiple asset class reduces risks. For instance, investment vehicle A & B may each have the same growth and risk characteristics. However, it is interesting to note that a portfolio constructed from A & B together will have lower risk characteristics as compared to a portfolio consisting of solely “A” or “B”.

The concept of relative valuation constitutes the basis for deciding not only the initial allocations but also for deciding allocations from time-to-time. In fact, the valuation metrics based on factors such as price, earning, growth & risk works as a powerful and effective tool to identify the undervalued segments.

How WealthSpring has created superior returns without taking undue risks:

Since its inception in mid 2016, WealthSpring has been committed to the above investment methodology. It may be noted that most of our initial client investments came in around the July – Sept 2016 timeframe, when Nifty averaged around 8,650. Nifty is currently around 8,900. Thus while NIFTY has given an absolute growth of 2.8%, the average WealthSpring portfolio for money that came in the same timeframe is up 7.5% (17.2% in CAGR terms).

It is important to note that this performance has been obtained without undue risk to customer investments. This is in large measure owing to our philosophy of deploying the above multi asset strategy across Equity & Fixed Income securities:

  • Earlier in September 2016, while NIFTY was at 8,700 levels, we were significantly overweight Fixed Income at the liquid end, keeping in view the artificially propped up bond prices globally.
  • Subsequently in December 2016, we took a call that it was time to significantly increase allocation to Equity and to reduce the Fixed Income allocation.
  • With NIFTY at 8,900 levels now, we have somewhat reduced the significant overweight position in Equity and shifted our Fixed Income allocation to the longer end. As regards Equity investments, we have over weighted the Pharma sector.

WealthSpring is focused on creating superior returns for you, by committing ourselves to sound investment methodologies. We will be happy to answer any specific questions on our market views and overweight positions such as on longer duration fixed income papers, Pharma sector and so on.

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