Investing strategies that follow non-traditional patterns
The year 2021 was eventful, with the pandemic’s impacts on markets and the economy. While investors were having a good time in the chaotic markets, with some stocks rallying over 100%, they were avoiding investment assets such as fixed deposits and debt instruments due to lower interest rates as RBI paused on interest rate cuts. Some of the investments that took centre stage in 2021 and might continue to be one of the best performers in 2022 are:
Passive funds – Money began flowing faster into passive funds and exchange-traded funds (ETFs) in 2021, and this trend is expected to continue in the foreseeable future, owing to lower costs of investments in passive funds (avg. expense ratio is 15 bps) and the inability of actively managed schemes to outperform benchmark indices on a consistent basis. 86.21 % of actively managed funds under-performed the benchmark in a one-year time frame as of June 2021. The power of passive investing is evident in the fact that several new-age mutual fund companies are launching passive products.
Equities – The year 2021 saw both Nifty and Sensex giving out much of their gains to investors. The primary markets have been the high point of the year. More than 20 million Demat accounts were opened last year, bringing the total number of Demat accounts to around 70 million, which shows the momentum that favourable stock markets brought about in the space.
Placing your faith in Equities may offer a head start in beating inflation if one considers well managed and well-established businesses providing stability and healthier grounds, rising upwards from the pandemic lows.
Due to the digital boom, knowledge dissemination for various easily accessible financial instruments has led investors to invest more. Other asset classes like real estate & gold have also gained traction on indirect investing through REITs & InvITs and Gold ETFs & sovereign gold bonds, respectively.
The above-mentioned investments would continue to perform well in 2022 too. We expect monetary policy to be normalised, the currency to be stable, and inflation to be mild, resulting in a reasonable return from the financial markets. The structural bull market in Indian equities is projected to continue through 2022, with domestic equity flows continuing uninterrupted.
New investment opportunities in 2022?
International Investments – Globally, markets behave differently during different periods around the world, and sujmart investors continue to rotate their investments among geographies as the winners and losers shift from year to year.
International investments through direct stocks or through feeder funds have a good chance of gaining traction as it diversifies risk and investors gain exposure to the global markets. Effectively feeder funds invest through a master fund that in turn invests in markets outside of India.
Alternative Investments – Investing strategies that follow non-traditional patterns, such as long-short strategies, pre-IPO investments in unlisted stocks, and structured products will be the trend to further diversify the portfolio. Given the volatility of the equity markets combined with low returns from fixed income avenues, this makes for a good option to consider. However, a word of caution here is that such investments could be riskier than the traditional asset classes.
Debt – On the debt side we see, investors opting for safety nets and staying away from the credit space and sticking to high-quality bonds & deposits. Even after a lacklustre year on debt, the expectation is that the interest rate may go up and this would enable investors to have allocation into MLDs (Market Linked Debentures) and quality rated bonds.
Conclusion
The portfolio should be built around a blend of low-cost index funds/ETFs to participate in the broader market, as well as a debt exposure via MFs or direct bond purchases to match the cash inflows & outflows. A small exposure to gold through Gold ETFs or Sovereign Gold Bonds and a modest exposure to alternatives like private equity funds for an extra alpha can see investors ride successfully through the year 2022.
[author title=”Abhijit Bhave, CEO, Fisdom Private Wealth ” image=”http://”][/author]
