Fill it, shut it & forget it? Nilesh Shah tell how

“There will be a temporary effect of Fed rate hike depending upon front loading and trajectory of the hike and our valuation, ” says Nilesh Shah, MD, Kotak AMC.

The Fed rate tightening continues to loom large. While there is clearly no way of predicting that, do you sense that it is inevitable that some of the money will pull out if that were to happen sooner than anticipated?
So, will there be a temporary effect of Fed tightening? The answer is undoubtedly yes. But there are two ingredients to Fed tightening: One, is the Fed going to raise more than three times what is discounted in the market? And will those rate hikes be front loaded rather than evenly spread? Both those factors – the trajectory of Fed rate rise and the front loading – will have an impact on our market.

The second thing is also our own growth potential and positioning. If the Fed tightening happens at lower than current level of the market, the impact will be far less. If it happens 10% higher than the current level of the market, the impact will be far more.

So our valuations and our expectations also will make an impact but at the end of the day, investors will remember what John Chambers, ex chairman of Cisco mentioned. He said: “If I have to bet upon one country in Asia it is India, if I have to bet upon two countries in Asia it is India twice.” So there will be a temporary effect of Fed rate hike depending upon front loading and trajectory of the hike and our valuation. But at the end of the day, John Chambers’ words will prevail.

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Which is the one category one should bet on in terms of risk reward ratio, volatility, valuations? Should it be the balance category? Should it be the equity diversified category? What is the one category which one should look at?

So for a customer or an investor who wants to fill it, shut it and forget it, the solution will be an asset allocator fund. In our Kotak asset allocator fund, depending upon the relative valuations, we divide between equity, fixed income and gold whereas in our balanced advantage fund, we divide just between equity and debt.

So for an investor who does not want to get into the nitty-gritties of asset allocation and wants a fund manager to do that job, the asset allocator fund or a balanced advantage fund will be appropriate. Now please appreciate that these are not the funds which will outperform smallcap equity on the way up and outperform fixed income on the way down. These are asset allocator funds they will always try to optimise risk adjusted returns for investors.

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