One investment for all market conditions
The All Weather Investing smallcase is a recession-proof long term investment strategy. The smallcase, via exchange-traded funds (ETF), invests in three different asset classes – equity, debt and gold. Investors can invest in the All Weather Investing smallcase regardless of market conditions.
Nippon India ETF Nifty Bees and Nippon India ETF Junior Bees provide exposure to a diversified basket of large-cap stocks. Large-cap companies are usually well established and are best suited for long-term wealth creation.
Nippon India ETF Gold BeEs provides exposure to gold. Gold is the best form of hedge against inflation and geopolitical uncertainties. Since the price of gold is negatively correlated with the price of the stock, the former is a very effective portfolio diversifier.
For instance, geopolitical tension in the Middle East, feeble economic outlook, the trade war between USA and China has caused gold prices to surge in recent months.
Gold price per 10gm has gone up from ₹32,001 at the start of 2019 to ₹39,821 this week, returning ~24% in the last 1 year. It hit a record high of ₹41,293/10 gm on 8th Jan.
During the same period Nifty 500, which can be treated as a proxy for the stock market, has returned 8.9%.
By investing part of the corpus in debt and gold instruments, the smallcase reduces fluctuation in the short term. However, the equity component allows the smallcase to generate wealth steadily over the long term.
The weightage of different components is derived via an algorithm that seeks to maximize the Sharpe ratio of the smallcase. Sharpe ratio denotes the returns earned for every unit of risk. The higher the ratio, the better the performance of the smallcase.
The strategy has been backtested across different stock market conditions since 2007. Since June 2007 the smallcase has generated absolute returns of 267.3% vs Nifty returns of 178.5%.
Combining equities & gold
An ETF is a tradable instrument that tracks an index, a commodity, bonds, or a basket of assets like an index fund. ETFs are very similar to mutual funds, the main difference being they are listed on exchanges and trade just like stocks.
The Equity & Gold smallcase invests in large-cap companies using Nippon India ETF Nifty BeES & provides exposure to gold through Nippon India ETF Gold BeEs.
The smallcase has been gaining momentum over the previous 6 months and has returned 8.9% compared to Nifty returns of 4.09%.
Amidst volatility caused by geopolitical tensions, benchmark indices closed the week in green. Sensex gained 0.33% during the week closing at 41,599.7. Nifty closed at 12,256.8 up 0.25%.
Gold prices hit an all-time high of ₹41,293/10 gm on 8th Jan as investors took cover in the safe-haven metal.
India Services PMI rose to a five-month high of 53.3 in December 2019 from 52.7 a month earlier, easily beating market expectations of 51.4. Output growth accelerated to the second-strongest rate in over a year and new business rose the most since October 2016.
Industrial production in India increased 1.8% year-on-year in November of 2019. Numbers were above street forecasts of -2.4% growth.
2020s — the decade of passive investing
smallcase CEO Vasanth Kamath, in this Moneycontrol article, shares his thoughts on the landmark developments that could spur the growth of ETFs and passive investing in the 2020s. Read the article here.
The smallcases Show
Hear from one of India's most renowned fund managers on the future of #ETFs. Sankaran Naren, CIO of @ICICIPruMF makes the case for investing passively via ETFs. Watch the complete Episode 4 of 'The #smallcases Show' -> https://t.co/yAZP5oeGvK
— smallcase (@smallcaseHQ) January 8, 2020