Three wealth advisers share their views on what they are advising their clients in the current market scenario and economic environment. All three were panelists on the 'Best Investment Advice for Today’s Challenging Markets' panel at the Morningstar Investment Conference.
Anand Vardarajan - Head of Investments at ICICI Bank Wealth Management
We will have these bouts of liquidity-driven rallies. Sometimes fundamentals obviously will be the slowest to catch up while sentiment and liquidity drive it up. We've been telling clients to stay true to their asset allocation. If there has been any dislocation on that front, just try and cut back; sell the overpriced asset, buy the underpriced one.
What we look at is where the pendulum is positioned between optimism and pessimism. I think we positioned somewhere close to the center. At this point in time, there are no points for being brave, but it's kind of important that we also remain centered and not get carried away by what's really happening.
What we are telling clients is to picture this as a football field. You have strikers, midfield and defense. When the pendulum is somewhere at the center, you need to have a stronger midfield, perhaps build up some defense and reduce the number of strikers in your portfolio. So cut back exposure to something which has done very well in the last few years and build in a layer of protection. Be mindful that there will be jolts in terms of volatility. So the thickness and thinness of that protection layer can depend on how aggressive or conservative the client is.
We are making the large-cap block a little thicker. We're saying perhaps there is safety in balanced funds.
Because when you invested in 2013, there was a premise to that and perhaps that has played out largely. If you are playing for the tail of it, like Buffett says, when the clock strikes 12, then Cinderella has to go. But some of these clocks don't have hands, so you never know when to leave. And you perhaps want to leave that party a little earlier before the music stops. Which is why we're saying have this layer of large cap, have a larger layer of balanced funds and perhaps re-orient your equity portfolio.
That does not mean you change your asset allocation. You're just bringing down the risk in your allocation.
Sunil Sharma - Executive Director and Chief Investment Officer at Sanctum Wealth Management
The common investor puts in some money and is feverishly and desperately looking for returns. Ultra HNIs have the luxury of patience. They can sit back and wait for opportunity and the right prices. Patience is a virtue when it comes to investing in the markets. We work with ultra HNIs in a way that is far more longer-term which leads to higher return sets. A lot of the investors we work with are sophisticated investors and they have seen the benefits that accrue from investing over longer-term periods. Such investors understand what the key decision factors are that are required at crucial times in the market and that can often mean the difference between a subpar return and a phenomenal return.
When I look at asset classes, we have a model where we break down the asset classes into their individual flows. So, you can compare equity and fixed income and another commodity and look at them on a relative attractiveness basis. What we're finding is on yield, equities are actually starting to look more attractive to us, because we've had this decline in the tenure and so the forward expectations for equities, despite valuation concerns, are relatively more attractive today.
So, we are slightly overweight on equities, slightly overweight on bonds, and underweight on gold.
Umang Papneja - Chief Investment Officer at IIFL Private Wealth
So, we're viewing this quite differently. This is the first time we are seeing divergence within asset classes.
Take Nifty for instance. You've got particular pockets which are extremely expensive and some extremely cheap.
Real estate residential properties across the board are expensive, but commercial properties probably are much more reasonable in valuations. In fixed income, government securities everywhere can't be called cheap anymore, there is a certain segment which will always.
So, I think you can actually turn the money where most of the money is not going in and that's where probably most of the earnings recovery is going to happen and that's the hope that that's where the money is going to be made. So, I don't think we'll go into crowded sectors. We'll probably try and capture something which people are not looking at.
While that is bottom-up, but also probably giving a top-down approach to the whole thing. So normally your P/E and P/B would warrant for under allocation to equity at this moment, but there is some kind of uneasy calm around the markets and that is reflected in option prices for instance. Put options for 3 years have never been so cheap before. So, maybe if you want to buy protection, just do it in the form of puts and don't book profits.