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Asset Allocation for Investors Pre COVID & Post COVID

Asset Allocation for Investors Pre COVID & Post COVID

Asset Allocation for Investors Pre COVID & Post COVID
Should it Change or should I stick to one that I am following

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Quantum Mutual Fund

May 10, 2021
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  1. Asset Allocation for Investors – Pre COVID & Post COVID

    Should it Change or should I stick to one that I am following Speaker: Chirag Mehta, Senior Fund Manager, Alternative Investments May 7, 2021
  2. Covid-19: Second Wave or Tsunami

  3. As cases surged in Wave 2, Europe Increased Testing over

    7 months – India in month 3, needs more Testing 142,820 190,092 189,411 117,763 334,950 203,608 1,094,007 930,340 740,747 2,150,991 - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 India France Italy Switzerland UK Day 1 of Second Wave As of Date (April 2021) Note: We have considered Day 1 of second wave for European Nations as 01st Oct 2021 and for India as 01st Feb 2021 Source : www.ourworldindata.org
  4. Fewer test may result in lower “Total Cases / Million”

    7,802 9,082 5,250 6,220 6,817 12,290 81,216 65,852 74,701 65,187 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 India France Italy Switzerland UK Day 1 of Second Wave As of Date (April 2021) Note: We have considered Day 1 of second wave for European Nations as 01st Oct 2021 and for India as 01st Feb 2021 Source : www.ourworldindata.org
  5. Lower cases reported will see lower “Total Deaths / Million”

    due to COVID Note: We have considered Day 1 of second wave for European Nations as 01st Oct 2021 and for India as 01st Feb 2021 Source : www.ourworldindata.org 112 470 594 240 623 146 1,523 1,983 1,223 1,881 - 500 1,000 1,500 2,000 2,500 India France Italy Switzerland UK Day 1 of Second Wave As of Date (April 2021)
  6. Vaccine Rollout – A Slow Start

  7. FIXED INCOME

  8. RBI has been one of the Largest Buyers of Government

    Bonds in the Last Three Years -2,000 -1,000 - 1,000 2,000 3,000 4,000 5,000 6,000 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 INR Billion RBI's Bond Purchases Gross Purchase Net Purchase Data as of April 2021 Source: RBI, Quantum Research Past Performance may or may not be sustained in future. 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 10 year Government Bond 3 year Government Bond
  9. Though Accommodative for now, Inflation Risk making Policy Choices Difficult

    2.0% 4.0% 6.0% 8.0% CORE CPI Repo Rate Data as of March 2021 Source – MOSPI, Bloomberg, Quantum Research Past Performance may or may not be sustained in future.
  10. Outlook – Volatility Ahead 2.0% 4.0% 6.0% 8.0% 10.0% 10

    year government bond 1 year government bond Data as of March 2021 Past Performance may or may not be sustained in future.
  11. EQUITY

  12. India will be a Large Part of The Global Economy:

    You Cannot Ignore It Source: Quantum, Angus Maddison, University of Groningen
  13. India’s Continued Reforms will Make India the Next China 2.3%

    3.9% 3.2% 2.9% 3.7% 2.2% 3.4% 4.0% 3.5% 3.3% 5.9% 5.4% 5.3% 5.2% 6.1% 6.7% 5.8% 8.5% 7.1% 4.9% 9.6% 9.9% 6.5% 12.3% 9.5% 7.8% 8.7% 11.6% 8.8% 7.1% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Jan 80 - Oct 84 Congress Nov 84 - Dec 89 Congress Jan 90 - Jun 91 Janata Dal* July 91 - May 96 Congress Jun 96 - Mar 98 DF* Apr 98 - Apr 99 BJP* Jun 99 - May 04 NDA* Jun 04 - May 09 UPA* Jun 09 - May 14 UPA* Jun 14 - Dec 20 NDA** Real GDP Growth World India China India average 6.1% China average 9.2% Source: Worldbank, RBI and www.parliamentofindia.nic.in as of December 2020. Please note that data used for World GDP for 2020 is a median Estimate since World Bank data is not yet available and India GDP data is governments second advance estimate released at the end of September.
  14. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 %

    growth China GDP China Capital 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 % growth India GDP India Capital Source: TED Database, As on July 2020. Investments drive Growth Income Opportunities
  15. These Opportunities Draw Investors & Investments 0.0 500.0 1,000.0 1,500.0

    2,000.0 2,500.0 3,000.0 3,500.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Cumulative Foreign Direct Investments (FDI) USD Billion China India 0.0 200.0 400.0 600.0 800.0 1,000.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Cumulative Foreign Portfolio Inflows (FPI) into Equity and Debt, USD Billion China India Source: World Bank
  16. India’s Economic Growth Reflected in Corporate Earnings Source: % change

    in INR, CLSA and Bloomberg Finance L.P., as of January 31, 2021. CY 21 and CY 22 are estimate numbers.
  17. Based on Historical Data: A simple Equity Market Return Assumption

    Indian Equity Market Return Assumptions & Expectations GDP Growth, real +6.5% + Inflation +5.0% = GDP Growth, nominal +11.5% If GDP Growth = Revenue Growth (Revenues of Typical Companies) +11.5% Profit Growth of Typical Companies +11.5% Companies, listed and in an Index > Typical Company +13.5% In Long-term Equity Return should Reflect Corporate Earnings Source: RBI, CMIE, Quantum Estimates
  18. Spiking PER Overstates Valuation Given The June Quarter’s Gap Down

    Source: Bloomberg Finance L.P., as March, 2021 Past Performance may or may not be sustained in future.
  19. Covid-19: Lockdown déjà vu ‘This Time is Different’ How is

    Corporate India Placed ? The lockdowns are lesser stringent and more localized this time Corporate Balance-Sheet are better. The focus has been on debt reduction and liquidity Last one year has been all about cost control and business continuity Pvt. Banks & NBFC’s have raised capital and are best capitalized in last 10 years As Global Recovery is intact, export companies and commodity producers are comfortably placed
  20. Corporate India: Listed Companies Are Faring Better Data as on

    March 2021 Data as on February 2021
  21. Smaller Companies are Losing Market Share -60% -50% -40% -30%

    -20% -10% 0% 10% 20% 30% Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Sales Growth Top 3 Deciles Bottom 3 Deciles -40% -30% -20% -10% 0% 10% 20% 30% Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Fixed Assets Top 3 Deciles Bottom 3 Deciles CMIE- Economic Outlook, Data as on December 2020
  22. GOLD

  23. Has Gold Finally Bottomed? Both the dollar and bond yields

    have started to climb down from their multi-month peaks reached in March Data as of 30h April 2021 Source: Investing.com 10-Year US Treasury Yield US Dollar US 10 YEAR NOMINAL TREASURY YIELD US 10 YEAR REAL TREASUR Y YIELD JAN 2021 0.93 -1.08 APRIL 2021 1.65 -0.76 CHANGE IN 3 MONTHS 72 BASIS POINTS 32 BASIS POINTS
  24. Negative Rates make Holding Gold more Attractive Lack of yield

    on fiat currencies supports gold Data as of April 2021 Source: Bloomberg Past Performance may or may not be sustained in future. -6 -4 -2 0 2 4 6 8 10 12 0 250 500 750 1000 1250 1500 1750 2000 2250 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 % USD Gold price US Real interest rate
  25. In A Bid to Boost the Pandemic Stricken Economy, Governments

    have Run Up their Debts to Unsustainable Levels Data as of December 2020; Median debt-to-GDP ratio of country grouping based on G20 advanced and G20 emerging economies; Data as on: December 2020. Sources: Financial Times, IMF historical debt database Global debt levels soar to second World War levels
  26. Central Banks on A Printing Spree to Buy Government Debt

    Relentless money printing by central banks undermines confidence in fiat currencies, benefitting gold Data as of March 2021 Source: Bloomberg 0 1 2 3 4 5 6 7 8 9 10 US -FED JAPAN - BOJ EU -ECB CHINA - PBOC $ Trillion 0 5 10 15 20 25 30 35 40 45 50 55 60 % to GDP
  27. Gold is a Monetary Asset – Gold has kept up

    with money supply growth Data as of December 2020 Source: Fred Past performance may or may not sustained in future 0 200 400 600 800 1000 1200 1400 1600 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 US Money Supply M2 Gold prices Rebased = 100
  28. Rising Deficits & Debt in the US are Making the

    Dollar Vulnerable Weakness and falling confidence in the dollar tends to strengthen gold Data as of September 2020 Source: fred.stlouisfed.org Data as of December 2020 Source: fred.stlouisfed.org
  29. Higher Inflation is on its Way Gold will be a

    preferred asset as it generally moves in line with inflation and has potential to preserve purchasing power Data as of March 2021 Source: Bloomberg 24% Data as of December 2020 Sources: Louis Fed, lynalden.com
  30. ASSET ALLOCATION

  31. “BLACK SWAN” OR BLACK CROW? 26 years, 17 dislocations –

    maybe 4 unexpected • 1994: the Harshad Mehta scam, • 1995: the Mexico tequila crisis and the collapse of Emerging Markets, • 1997; the Asian crisis and the collapse of Emerging Markets, • 1998: the bankruptcy of Russia and hedge fund Long Term Capital Management, • 2000: the collapse of the tech bubble, • 2001: 9/11 and the bankruptcy of Unit Trust of India, • 2003: SARS, the Iraq war • 2008: the bankruptcy of Lehman, the Global Financial Crisis • 2013: Bernanke's twist led to India's collapse • 2016: Demonetization and the Great Indian Economic Slowdown • 2018: bankruptcy of IL&FS • 2019: Cooperative banks and developers going bust, • 2020: YES Bank, COVID-19
  32. There have been years when equity markets had a brilliant

    run, years when only bonds were dependable, and years when gold shined the brightest, and these periods did not typically overlap 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* Sense x 49% Sense x 49% Gold 26% Sense x 83% Gold 23% Gold 32% Sense x 28% Sense x 11% Sense x 32% Bonds 9% Bonds 13% Sense x 30% Gold 8% Gold 16% Gold 28% Sense x 2% Gold 20% Gold 16% Bonds 9% Gold 24% Sense x 19% Bonds 7% Gold 12% Bonds 4% Bonds 14% Sensex -4% Gold 11% Gold 5% Sense x 7% Sense x 14% Sense x 17% Bonds 0.3% Bonds 4% Bonds 7% Sense x -52% Bonds 4% Bonds 5% Sense x -24% Bonds 9% Gold -5% Gold -8% Gold -7% Sense x 3% Bonds 5% Bonds 6% Bonds 11% Bonds 12% Gold -5% Past performance may or may not sustained in future The chart ranks the best to worst performing indexes per calendar year from top to bottom *Data as of April 2021 Past performance may or may not be sustained in future. Based on S&P BSE Sensex; Domestic Gold prices and CRISIL Composite Bond Fund Index Source: Bloomberg Imagine someone holding an all equity portfolio in 2008, or holding none in the equity rally that followed? 32 Rule 1: Embrace Market Cycles
  33. Risk-Return Equity +Debt +Gold * Equity + Debt ** Equity

    Debt Gold CAGR 11.05% 11.00% 12.53% 7.24% 11.41% Annualized SD 9.41% 13.53% 22.15% 3.29% 17.37% VAR -15.53% -22.32% -36.55% -5.43% -28.67% Maximum Drawdown -21.43% -36.08% -56.17% -6.29% -25.22% Sharpe Ratio 0.5332 0.3674 0.2936 0.3662 0.3094 Portfolio Impact of Diversification If you compound your money at 12% per year you are better off than an investor who makes 25% in one year and loses 20% in the next The most diversified strategy yields similar returns with the lower volatility, compared to a pure equity strategy 33 Time frame is November 2004 to April 2021. The period is taken from 2004 since the asset allocation weights are calculated based on normalizing the historical monthly equity and debt indicators. Given the normalization time frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a constraint. Compiled by Quantum AMC *Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range Based on Sensex TRI, Crisil Composite Bond fund index, and Domestic Gold Prices Note: Past performance may or may not be sustained in the future
  34. Quantum Multi Asset Fund of Fund An example of dynamic

    asset allocation Data as of April 2021; Source: Quantum MF Note: Past performance may or may not be sustained in future. 0 15000 30000 45000 60000 75000 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% 55.00% 60.00% 65.00% Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Equity allocation Sensex TRI
  35. 2021- A Simple Asset Allocation Strategy to Deal with Market

    Cycles
  36. Disclaimer – Terms of Use For AMFI/NISM Certified partners only.

    For private circulation only. The data in this presentation are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required as per SEBI Mutual Fund Regulations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. None of the Sponsors, the Investment Manager, the Trustee, their respective Directors, Employees, Affiliates or Representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the data/information/opinions contained in this presentation. The Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required. Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-). Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956. 7th May 2021 Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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