One person called me up last week and said “Subra I have been seeing my portfolio….I think I should get rid of all the bond funds, liquid funds et al…”

When I asked her more..she said “I have been watching my portfolio and the debt funds are doing NOTHING. All my returns have come from Equity funds Only”.

I said – but debt funds are needed for stabilizing returns, for lower standard deviation, for withdrawing for expenses,……

She said: “You have been saying all this but in the past 7 years that I have been investing, it is only the equity fund which has given me good returns, and that too tax free”

Well the argument is not wrong for a person who has been in equities only for the past 7-8 years. This is a valid argument. Or so it seems to them. They have not seen 1999, 2008 or even worse 1993….or…

A longish bull run has spoiled us to believe that equity markets are PPF on steroids.

Most of the investors, do not know what it is to be in the middle of a long bull run. I have got very lucky in the fact that I bought all the Tech stocks about a year ago..and the US $ going to 72 is helping me. Well, I did hedge – I bought some shares of Indigo too!!

Let’s get the facts right. If you are an adviser it is a difficult time to ask your clients to sit on debt funds. Especially with episodes like ILFS (we have not heard the last on this, but the debt funds have taken some haircuts!). Are we in a bull market where the leaders are changing from BFSI to Technology or Pharma or damn it, Infrastructure?

I DO NOT KNOW.

However, it is a bull market or a bear market where your asset allocation strategies and advice are tested. Keeping clients in pension funds, annuities, etc. is not really easy. It must be done. Yes, even if you were to lose a client it is worth it.

I met one of India’s top fund managers almost a year ago…and asked him “should I reduce my weightage on nbfc”.

He said the fact that you are asking me itself means that YOU know that you should reduce the weightage. Of course you should. I cannot reduce the weightage UNLESS my benchmark reduces the weights. He also said “If you sell your Nbfc shares now you will perhaps regret in 3 months…but in 12 months you will be happy that you sold and booked profits”.

Well I did not sell ENOUGH, but yes I sold partially. That was because I met another fund manager who told me “given the fact that the US interest rates are headed upwards…I expect the Re to weaken…and oil prices to go up (at that time it was US $40), and some of the debt investments by the FII to flow out…Well I hedged. I bought IT and pharma.

Ha. Reallocation, shifting from one industry to another, from one asset class (equity) to another (debt), etc. are things necessary for fund managers to do.

If you are a regular investor doing a sip….make sure that your asset allocation lets you sleep at night. Keep learning.