One suggestion that many mutual fund advisors as well as fund managers are giving is rebalancing portfolios. “”Given that earnings are getting broad-based and are being supported by a strong recovery in global growth, the outlook remains positive. However, near-term corrections on account of global factors or the occurrence of further disruption will test the resilience. Asset re-balancing in line with one’s goals & risk capacity is a proven way for better investment experience,” says Sailesh Raj Bhan, Deputy CIO – Equity Investments, Nippon India MF.
Valuations have been a concern in many pockets of the market. However, on the other hand, equity mutual funds are seeing record inflows aided by NFOs. “There is certainly a discomfort in terms of valuations for the market. However, due to the economic expansion we are optimistic about the earnings growth on a medium to long term basis. So excessive valuations is a matter of concern in the short term but the long term journey remains intact. The mutual funds investors should temper down their near term return expectations and remain invested for the long term,” says Vinit Sambre, Head- Equities, DSP Investment Managers.
Market participants believe that the rally in the stock market is driven by retail investors and mutual funds. The retail holding of NSE-listed companies hit a record high of 7.18% in the quarter ended June 2021. The inflows into equity mutual funds were also on a rise in July. Mutual fund advisors say that the trend of investors pushing more money when the markets start going up is continuing in the current market as well.
S Naren, ED & CIO, ICICI Prudential MF says that if one looks through the previous all-time highs (1999, 2007 and 2017), the common feature was that investors ignored asset allocation. This proved to be an expensive mistake for many. “The optimal approach is to adhere to asset allocation or invest in schemes such as the balanced advantage or dynamically managed asset allocation schemes. For an investor looking to invest across a diverse set of stocks spread across market capitalization, flexi cap category tends to be beneficial as this approach will help mitigate the risks associated when investing in a narrow set of stocks,” suggests S Naren.
However, if you are a long-term investor S Naren suggests investors to also look at value funds. “We believe value investing at a time when the market is around all-time highs tends to do well as value focuses on investing in sectors which are out of favour but have long term value. This approach of value investing tends to deliver sizable returns over the long term,” says S Naren.
