Multi-Asset Smart ETF
A smallcase by the research team of Compound Everyday PMS
Investing and Operating Philosophy
Mandate: Multi Asset Smart ETF is a smallcase of ETFs based on multiple asset classes that have low or negative correlation among themselves. Illustrative list includes Indian equities, global equities, gold, debt instruments, liquid instruments etc.
Low Cost: Passive investment products such as ETFs are gaining popularity world over as a low cost way to earn market average returns that even many active products that charge higher fees fail to beat. This is because they mimic the underlying asset/ benchmark in exactly the same proportion without applying any human mind. No fund manager, no fund manager salaries.
Smart: What follows from above is also that a plain vanilla ETF is a dumb product. It is value agnostic. Securities that rise in price gain weight and the ETFs increase allocation to it and vice versa. However this smallcase is a smart passive product. The mutual weights of ETFs are so adjusted that at no point an investor owns a large proportion of overvalued asset class.
Respect for cycles: The smallcase believes that due to psychological and economic reasons every asset moves in a cycle that mean reverts. And future returns are a function of how we place ourselves in an asset’s cycle.
Low Volatility: The smallcase rebalances among various ETFs quarterly. The rebalance is based on historical returns of individual ETFs. The weights of ETFs that have done well and are expected to be in top of their cycles are reduced. Conversely, weights of ETFs that have not done well and are expected to be in the bottom of their cycles are increased. Further, many assets have low or negative correlations among themselves. In simpler terms, this means they move in opposite direction. It is normally seen that Equities and Gold have low to negative correlation across time horizons. When equities fall – a period of economic difficulty, gold – considered as hedge against calamity – remains stable or even rises. Thus by including low correlated ETFs and periodically rebalancing among them leads to a less bumpy and less volatile return experience.
Benefits of this smallcase
This smallcase empowers investors to earn, over three to five year periods, average market returns at a low cost and importantly with low volatility than individual ETFs. The low volatility gives more staying power to the investor. And time is of essence in letting compounding work its magic.
Caution
It is important to understand what this smallcase cannot deliver.
As the name suggests, it’s a passive oriented product. In technical terms it is a beta product i.e. designed to earn average returns of the benchmark.
As a corollary, and unlike our active smallcase Sustainable Compounders, it is not an alpha product. In other words, it cannot beat the underlying asset on which it is based on.
Kind regards,
Team Compound Everyday Capital
Sumit Sarda, Surbhi Kabra Sarda, Suraj Fatehchandani, Sachin Shrivastava, Sanjana Sukhtankar and Anand Parashar
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Disclaimer: Compound Everyday Capital Management LLP is SEBI registered Portfolio Manager with registration number INP 000006633. Past performance is not necessarily indicative of future results. All information provided herein is for informational purposes only and should not be deemed as a recommendation to buy or sell securities. This transmission is confidential and may not be redistributed without the express written consent of Compound Everyday Capital Management LLP and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Reference to an index does not imply that the firm will achieve returns, volatility, or other results similar to the index.