The markets have been on a frenzy for much of 2023 and the current year as well. Benchmark indices are making fresh life-time highs in recent weeks amidst occasional volatility. Even the bond markets have rallied after a difficult 2022, and a largely sideways 2023. After massive increases in interest rates during 2022 and early-2023, resulting in a mixed run for bonds, central banks have finally hit the pause button on further hikes for many months now.

For investors, the heavy action across markets and asset classes brings the question of allocation to the fore. Asset allocation should anchor much of your investment decisions based on your goals, timelines, risk appetites, available surpluses and so on.

As a retail investor, juggling various asset classes to get the best returns from each avenue by timing your moves, becomes extremely challenging.

For optimal risk-adjusted returns over the long term, asset-allocation funds could be a reasonable mode of buying different assets via a single product.

For retail investors with a moderate risk appetite, multi-asset funds, which invest in a blend of equity, debt and gold, could be well-suited investment avenues.

In this regard, Tata Multi Asset Opportunities Fund may be a good choice for investors. The category itself is relatively new and this fund has a track record of a little under four years. But over this period, it has delivered steady returns with a fair degree of consistency.

Investing across assets

In the present elevated markets, limiting risks to the portfolio is important. Diversification is important, but works best when the constituents of a portfolio do not move in tandem. Their price movement dynamics must be fundamentally different.

Now, equity, debt and gold move based on various factors and thrive in different types of market conditions. These three asset classes have very little correlation to each other’s moves across timelines.

Over 10-20-year periods, equity-debt, gold-debt and equity-gold have negative or very low correlation coefficients. Adding them to your portfolio would ensure that your portfolio is protected on the downside and is able to generate optimal risk-adjusted returns.

In a multi-asset fund, the allocation to equity, debt and gold is based on market conditions and, therefore, such a scheme makes it easier for investors, especially fresh entrants, to deal with market gyrations.

Equity is the wealth creator of a portfolio as it generates strong returns over the long term and helps reach most financial goals.

Debt is for generating regular income and is expected to provide steady low-risk returns.

Gold acts as an inflation hedge, though it has also beaten equities in many years, and insulates a portfolio during volatile markets.

Fund’s performance

Tata Multi Asset Fund was rolled out in March 2020 and has since juggled investments well to generate healthy returns. 

When two-year rolling periods since the launch of the scheme are taken, the fund has delivered 17.4 per cent returns compounded annually, on an average.

A systematic investment plan (SIP) in the scheme made over the past three years would have delivered an XIRR of nearly 19 per cent.

Tata Multi Asset has delivered two-year rolling returns of more than 10 per cent over 95 per cent of the time from March 2020 to February 2024. Over the same timeframe, the scheme has delivered more than 12 per cent over 79 per cent of the time and in excess of 15 per cent nearly half the time.

The scheme maintains a fairly consistent asset-allocation pattern across most market cycles. Usually, 65 per cent or more of the portfolio is invested in equities and equity derivatives. Though large-caps dominate, with over 50 per cent of equity exposure to such stocks, broader market exposures via mid- and small-caps are also prominent. The fund takes the arbitrage (futures) route to hedge the equity portion of the portfolio.

Tata Multi Asset takes exposure to a variety of commodities such as gold, silver, crude oil, copper and aluminium via commodity and derivative markets. This could go to 18-20 per cent of the portfolio.

Government securities, repo and non-convertible debentures that are highly safe form the debt portion of the fund’s holdings.

With a downside capture ratio of 36, the scheme falls much lower than its benchmark. Its upside capture ratio is 72, suggesting that it may not rise as much as the benchmark during rallies. Thus, it is able to contain downsides and provide stable returns.

Investors can consider SIPs in Tata Multi Asset Opportunities fund with a five-year perspective.