Is it time to reduce your equity exposure and bring it back to debt?
Looking at the valuations compared to the history of the stock market, and whether you’re looking at large, medium, small cap or Nifty500, all of them give me the message that this market is quite expensive I think that there. Even if you compare equities to alternative asset classes, such as bonds, as reflected in 10-year government yields, equities as an asset class are less attractive than they used to be. So I rebalance your asset allocation away from equity, but in the context of the overall asset allocation methodology you are trying to follow. Therefore, the more compelling answer needs to be within the asset allocation framework. Today’s assessment shows that if equity is over-allocated, it will definitely return to its goal.
I recently became CIO of UTI AMC. So what’s the future?
I will continue to make sure that we remain a process-based organization. The transformation I made when I joined in 2017 was to say that it is a fundhouse that can focus on the process and execute multiple strategies that are all supported by one investment process. And what we are trying to do now is to bring the same set of learning to the bond side. We have a good and experienced team, but we are trying to make sure that it is a process that needs to be the backbone of the organization in order for investors to meet what we expect from us in the long run. Of course, every investment team needs talented people. It is a combination of stability and talent quality provided by the process, with the desired results. Therefore, keep in mind that UTI’s asset management is a major investment trust, and we will continue to apply the same to the entire investment process and where we can add value, but there are other things we can do. Overall asset management space.
Why are we witnessing a huge demand for new fund offers (NFOs)?
You seem to see a lot of positive news streams when the market hits record highs and when I’m talking about price levels. You see a lot of money being attracted to the market. I don’t know if that is always a good thing. People who have been on the sidelines for the past few months have jumped in.
Also, some of these NFOs probably filled some of the gaps we had in terms of product offerings. For example, in our case we didn’t have a small fund or a centralized fund, but we filled it. And this may also apply to many of our peers.
Indeed, if there is good news and a record high in the market, it tends to attract a lot of people, which is probably why NFOs are so successful.
Passive investment is the taste of the season. How will the investment trust industry be affected?
I think there is room for both to coexist. Passive funds do one thing. They manage their money at a very low cost. But at the same time, they can neither claim nor try to create alpha. With active funding, the attempt is to create an alpha. Both products have their own costs and benefits. Our approach is that this is neither a problem, but what is right for investors in terms of cost, and to improve the overall return that the portfolio gives compared to the benchmark. .. Investors are increasingly creating space in both active and passive portfolios. At the same time, given that in other parts of the world it is functioning under slightly different types of circumstances, many institutional markets could endorse passive investment routes. confirmed. You need to make sure that investors, as UTI’s active managers, believe they can create alpha for them.
It’s been on the market, there have been outflows in the last 18 months, and even profits have been good. So where is it still worth it in this market?
Today, looking at the sectors where there is a mismatch between structural growth rates that may occur in the coming years and recent demand trends and valuations, cars fit into that pack. Of course, if you look at the cheap ratings, there are also existential questions. This also applies to the automotive industry. Concerns about EVs (electric vehicles), what that means for cash flow generation and return on equity. From a demand perspective, automobiles are an industry that has gone through a tough period of two to three years. But there is some value to find.
The second sector is finance. The credit side has gone through the challenges as far back as 2018, so it’s worth some. We were at a time when loan growth was slowing down anyway, and something like covid-19 added to that pain. But the good part is that, for the first time in many cycles, there are a handful of financial institutions, which are not only preemptively prepared for books, but also funded and well capitalized for growth. .. After this difficult time, market share and profitability can be significantly improved.
We will also consider larger healthcare, including medicines. The sector has seen one foot reassessment over the past year, but we believe there are still opportunities compared to the growth outlook.
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“Investors adopt active and passive styles in their portfolios”
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