Need for Asset Allocation

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Different asset classes react differently to business cycles, changes in the economy, and geo-political realities. Federal policy, interest rates, changes in global supply chain, inflation outlook, among others, are the major determinants of factors affecting each asset class.

Past data has shown us that no two years have had similar winners. This indicates that investing in diversified asset classes is the need of the hour. While investment decisions are often taken based on market sentiment and “recency bias”, data proves that a vast majority of the returns of a portfolio can be attributed to appropriate asset allocation.

The risks specific to a local economy can bring volatility and periods of underperformance to investors that are solely exposed to just one particular country. For example, India is one of the world’s fastest growing economies and holds great promise, but is not immune to systemic risks — case in point being turmoil around demonetization, banking sector scams, and political crises. Also, for the last 25 years, INR has had an average depreciation rate of 3% against the US Dollar, giving USD investments an added advantage.

A Globally Diversified Outlook

It is time to create a globally diversified outlook that is not impacted by local blips.

Global investments create an avenue for a wide range of investment ideas and unique themes. The market potential is vast — there are approximately 2200 Exchange Traded Funds (ETFs) listed in the US alone, with an AUM of $5.4 trillion. This gives investors the ability to add to their portfolio compelling themes that are preparing the world to be future-ready such as clean energy, healthy lifestyle, decentralized finance, robotics & space technology, cloud computing amongst many others.

The Decade Ahead

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The crisis brought on by the Covid-19 Pandemic led to the deepest economic contraction since the Great Depression. However the global economy witnessed robust growth in the re-opening phase from Covid restrictions led by strong demand.

One can expect continuing government intervention in some form or the other and massive debt relief measures. In view of the ongoing trade wars, changing geo-political alignments, and high debt-to-GDP ratios of various countries, the flow of money to various parts of the globe will likely be uneven. It is evident that reshoring of supply chains and increase in localization of manufacturing across critical industries will create new winners and losers.

We are again seeing emerging divergence of asset classes where there is likely to be sector and theme rotation that will create relevant investment opportunities at different points in time. 

Our team works with far-reaching insights that help us bring the best of opportunities to you in an ever-changing global landscape.