Wednesday, October 20, 2021
HomeMarket Live UpdatesIt’s time to rebalance portfolio, diversify into global markets: Nimish Shah

It’s time to rebalance portfolio, diversify into global markets: Nimish Shah


This is the time to look at exiting some of the laggard midcap and smallcap stocks or funds where you do not see good value in the next two or three years and shift that amount to the largecaps, says Nimish Shah, CIO, Waterfield Advisors.

How can people benefit out of the global markets or REITs or any other such new products?
Global markets options have been available to investors for some time now through rupee investment. It is a very good option for investors because it provides mainly geographical diversification and because of geographical diversification there are four major advantages. One is, you get currency diversification because you are invested in various countries. Second, there is a very low correlation between various markets. Therefore when there is a downturn or upturn in any of these markets, the correlation being low, the returns can be different.

The third aspect is in terms of what you are getting. One can invest into good quality global businesses where the market caps are quite different. These are all multi-trillion dollar market capitalisation companies.

And last but not the least, one can actually focus on global themes. For example, there is a theme which is playing out either in the IT sector or in the food delivery sector or in cryptocurrencies. There are various options to participate in these kinds of global themes.

But when you participate in global themes, don’t you think that your investments or returns are getting too diversified because one market may benefit from crude going up, the other may not and that is why you may have a very limited gain?
No. Let me give you a perspective. If you are looking at countries like India, the USA, Europe, China and Japan– in the last 10 years, only four times India has been in the number one position in terms of returns. So India has been on the top 40% of the time. It has been in number two position only once and never been in number three position. So out of the 10 years, only five times it has been either number one or number two.

There are other markets like the USA, China, Japan and even Europe which have outperformed in these other years. So it is more in terms of diversification and in terms of getting into global businesses and global themes.

How would you advise people to participate in real estate? Do you expect more product offerings on the REITs’ side as well?
There are two options; one is REITs and second is in terms of InvITs. While the InvITs are focussed on infrastructure, the REITs focus on the real estate side of it. We are advising our clients to be invested in both InvITs and REITs. Given the lower yields, as far as the REITs are concerned, as of now the focus is more on InvITs rather than REITs.

The way real estate markets are bouncing back, soon REITs also will be an option for clients to really invest in.

How important has global investing become now considering that our market cap is $3.3 trillion and returns from here may be limited?
That size is quite different as far as global markets, especially developed markets are concerned. Markets like the US and Europe, Japan have companies with multi trillion dollar market capitalisation leave aside the country as such. When you or the underlying fund is investing into say Alphabet or in Apple or in a Nestle, then you are getting participation across the globe and where the US may be only about 40-45% of the revenue; the Middle East, Africa, Europe and even the incomes of emerging markets are capturing almost 60% of the business. That is how diversification helps where one invests in large global businesses.

With the level price to earnings multiples now, should one diversify into midcaps, smallcaps and largecaps?
As far as the current valuation is concerned, it makes sense to be more oriented towards largecap stocks and largecap funds rather than the midcap and smallcaps. However, we are not recommending being under-invested in mid and small caps. Mid and smallcaps in the last one or two years could have probably given you large returns and therefore the allocation to mid and smallcaps could have increased compared to your overall asset allocation.

This is the time probably to look at exiting some of the laggards or some of the stocks or funds where you do not see good value in the next two or three years and shift that amount to the largecaps. This is the time to really rebalance your portfolio.



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