Nov 2019: Kuvera recommended portfolio update

First, for those who are new to Kuvera, a quick recap.

We have recommended a portfolio since Jan 2017. We updated our recommendation in Oct 2018. You can read about that here: Performance & Recommended Portfolio Update

We started out in Jan 2017, with this equity portfolio –

Jan 2017 – Oct 2018 Portfolio Weight
ICICI Prudential Nifty Next 50 45.7%
Motilal Oswal Focused 25 28.5%
IDFC Nifty  12.9%
ICICI Prudential US Bluechip 12.9%

 

We updated it in Oct 2018, to our current equity portfolio recommendation –

Oct 2018 – Till Now Portfolio Weight
UTI Nifty Next 50 45.7%
Motilal Oswal Focused 25 28.5%
DSP Equal Nifty 50 12.9%
ICICI Prudential US Bluechip 12.9%

 

We recorded the rationale for portfolio recommendation changes here: Performance & Recommended Portfolio Update

Our portfolio has ~13% international exposure through ICICI Prudential US Bluechip fund. Has focused factor exposure through ~29% holding in Motilal Oswal Focused 25 fund. You will also note that with the exception of Motilal Oswal Focused 25, the remaining three funds have zero stock overlap.

 

Second, how do I see Kuvera’s recommended portfolio?

You can view our recommended portfolio and invest in it when you do goal planning on our platform. You can also just mimick the portfolio weights above. The difference is that when we know your goals and your investment horizon (5 yr, 10 yr etc) we can also advise you on how much of your portfolio should be in our recommended equity portfolio and how much should be in our debt portfolio. So, goal planning will not only show you our recommended portfolio but also asset allocation.

 

That out of the way, let’s look at the performance and risk review of our portfolio vs Nifty 50 and Nifty Next 50.

 

Performance overview – all time period.

 

Jan ’17 – Oct ’19 Nifty 50 Nifty Next 50 Kuvera
Annual Return 14.3% 10.5% 13.3%
Std Dev 13.5% 15.7% 12.2%
Drawdown -10.7% -17.1% -11.0%
Max Monthly 7.4% 10.1% 7.9%
Min Monthly -7.5% -12.0% -8.0%
Return / Risk 1.06 0.67 1.09

 

And the chart: 

Some quick observations:

1/ Our rationale of the four selected funds was based on low historic covariance and low fund overlap. In the case of index funds, we used index returns to have long-run data available. Nifty Next 50 is the base of our recommendation with 46% of our equity portfolio recommended to this index. Our diversification through Nifty index, one international fund and one focused fund significantly improve on the return and risk of Nifty Next 50. Nifty Next 50 reward to risk ratio (Returns / Std Deviation) has been 0.67 in this time period while the Kuvera portfolio has a reward to risk ratio of 1.09. Since Jan 2017, while Nifty Next 50 has returned 10.5% annualized our diversified portfolio has returned 13.3% annualised. Similarly, while the volatility of Nifty Next 50 has been 15.7% our recommended portfolio has a volatility of 12.2%.

2/ That Nifty 50 and our returns are close is a co-incidence. Nifty 50 has returned a higher 14.3% during this time period at a marginally lower reward to risk ratio (1.06 vs 1.09). That our returns are close to Nifty 50 is a pure coincidence. We expect this to diverge in the future.

 

Performance overview – calendar year performance.

Return Nifty 50 Nifty Next 50 Kuvera
2017 27.6% 43.2% 35.2%
2018 4.5% -9.0% -3.7%
2019 YTD 9.5% 1.9% 9.5%

 

Volatility Nifty 50 Nifty Next 50 Kuvera
2017 11.1% 13.1% 9.3%
2018 15.4% 18.2% 14.3%
2019 YTD 14.3% 14.0% 11.9%

 

Reward / Risk Nifty 50 Nifty Next 50 Kuvera
2017 2.5 3.3 3.8
2018 0.3 -0.5 -0.3
2019 YTD 0.7 0.1 0.8

 

 

What next?

We have written on how gold can be a good downside hedge to equity exposure – even better than credit and bonds. In the past 29 years of data, the correlation of monthly gold returns and monthly Nifty50 returns is just 0.3%! 

Of the 348 monthly returns in our sample, there are 178 instances where the returns on gold and returns on Nifty 50 have opposite signs. That is if gold posted positive returns, Nifty 50 posted negative returns and vice versa. This is exactly what diversification is about – two assets, each with positive expected returns but no correlation in returns.

 

Essentially, what gold loses in return expectation it more than makes up for in correlation and thus diversification benefits. Gold, you see, is a team player. And at times when Nifty 50 is not performing due to crash fears, wars, natural hazards or disasters, gold does well.

It helps you tide over the bad times much better. Or you could say, when the going gets tough, gold gets going.

The dot com burst of 2000 – 2002: Between 2000 to 2002 Nifty50 proceeded to fall 40%. As a flight to safety and crash hedge, Gold had outsized gains of ~30% during the same time period.

 

The Global Financial Crisis of 2008: Nifty50 saw a monthly drawdown of ~50% during that time. Gold again shone as the crisis hedge and rallied ~30% to protect from some of the impacts of the stock market meltdown.

 

 

We also note that digital gold is probably the best way to get exposure to the yellow metal, far better than gold ETF and Mutual Funds. We are working to enable digital gold SIP and think a 15-20% exposure to gold will help investors stay invested by making the return journey less volatile. Watch out for that in the near future or till then make lumpsum digital gold investments here.

 

Frequently Asked Questions

1/ How often should I rebalance?

You can allow a 5% deviation to model allocation before thinking of rebalancing to original portfolio weights. Deviation based rebalancing is far superior to time-based rebalancing (every 3 months, or 6 months etc).

 

2/ When will you add small-cap exposure? 

We are still tracking small-cap and mid-cap space with interest. This was our position in Oct 2018 as well when we did our last portfolio update. We are still not convinced this space offers value and we are comfortable to the possibility that we might miss the bus on a small-cap bull run. There is no FOMO. We will keep you informed as and when our opinions change.

 

3/International markets are doing well, should we increase our US exposure? 

No. In 2017, the Indian market did very well and we were questioned on our US exposure. Then 2018 and 2019 happened. Diversification is not the same as chasing returns. If you do not have international exposure then it helps to add it to your portfolio. If you already do, then don’t increase it based on recent past returns. Chasing returns will only lead to the behaviour gap and lower future returns.

 

*** We will keep adding FAQ based on what we get asked the most 🙂

 

Interested in how we think about the markets?

 

Read more: Zen And The Art Of Investing

 

Watch/hear on YoutTube:

 

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and Digital Gold and start investing today.

#MutualFundSahiHai, #KuveraSabseSahiHai!


31 Responses

  • Vipul

    December 1, 2019 AT 06:49

    I love to have Kuvera, well designed web site and good articles through mail support, one who are investing in MF must have kuvera registration


    • Gaurav Rastogi

      December 10, 2019 AT 04:19

      Thanks Vipul


  • TARAN

    December 6, 2019 AT 12:33

    Its a wonderful app. They keep on improving it regularly. Would love to have more assisting and guiding features in future that would help in making the right choices. Looking forward to it.


    • Gaurav Rastogi

      December 10, 2019 AT 04:18

      Thanks Taran.


  • Sandeep Marthala

    December 12, 2019 AT 03:57

    I think you should be explicit of expense ratios of funds you selected and impact of exit ratios when you rebalance


    • Gaurav Rastogi

      December 13, 2019 AT 06:40

      Sure we will add this. Index funds generally have very low expense ratio and very short for exit load periods.


  • Gaurav Kumar

    December 18, 2019 AT 09:39

    It was nice reading this analysis. I have a question for you as a lay investor:

    Suppose I rely upon your suggestion as described. What do I do if I wish to rebalance my future investment portfolio as and when your suggestion changes? Do I stop the ongoing investments, redeem them and reinvest them according to the fresh suggestions, OR do I simply stop any SIPs to the old bunch of MFs and redirect any future investment according to the new suggestions? What does the zen of investment say about this?


    • Gaurav Rastogi

      December 30, 2019 AT 01:58

      Stop the old SIPs
      Start SIPs in the new fund.
      Redeem and reinvest old funds in the new funds in a tax-efficient manner.


  • Singh

    December 20, 2019 AT 04:32

    I can invest ( Kuvera portfolio) for my child education for horizon 9 year .


  • Deepak

    December 26, 2019 AT 00:05

    Thanks Kuvera for the excellent work that you continue doing. On the Goals, please could you add a feature to add, modify a specific date so it can be more useful. Thanks.


    • Gaurav Rastogi

      December 30, 2019 AT 01:57

      On the dashboard when you click on the goal you can modify the duration of the goal. Currently in only yearly increment. We will add monthls soon.


    • Aditya

      January 19, 2020 AT 17:16

      Hi, this is excellent article and am planning to follow your portfolio and invest through SIP’s. What I want to understand is, why do you have ICICI US blue chip for international exposure and not some index fund like Motilaloswal Nasdaq 100 ETF FoF?? With your other recommendations you have gone the route of index funds, but here this seems to be different. Motilal fund seems to have lesser expense ratio too.


      • Gaurav Rastogi

        January 20, 2020 AT 01:06

        Thanks Aditya.

        MOSL Nasdaq 100 is not a broad market index – it is a tech index. We have written elsewhere about sector timing and that applies to Nasdaq too. We prefer more broad market indices and since there is no S&P500 index, the ICICI US is a good proxy.

        Further MOSL Nasdat ETF FOF is a fund of fund, so you have to add the expense ratio of the underlying ETF to the expense ratio of the fund itself. Hope this helps.


        • Aditya

          January 27, 2020 AT 17:36

          Oops! I seems to have replied to an already existing comment and didn’t see your response.
          Thanks for the response Gaurav.
          Now including ICICI US makes sense. I like the plan and reasoning. Have signed up for an SIP based on the recommendation with the suggested weights. Hopefully we get a proper S&P 500 fund and we can switch to it!


  • Apurva

    January 19, 2020 AT 03:12

    Hi Gaurav, I have been using Kuvera for sometime now and really happy with it. Request to add one more feature though- of being able to tag different folios to different goals in the same scheme as I wish to invest in separate SIPs in same scheme aligned to different goals. Please do let me know if this facility is already there and I may have missed it. Thanks!


    • Gaurav Rastogi

      January 20, 2020 AT 01:59

      Thanks for the feedback Apurva. We will look into this.


  • Vinay

    January 21, 2020 AT 17:25

    Good Job done Team Kuvera !
    I am sure you have a list of features which are prioritized in your pursuit. If not done may be a poll could be a good idea. I would like to suggest some features suggestion namely, p2p lender account statement upload to measure debt component here, possible integration of NPS account mapped to retirement goal, Savings Bank Account Balance Update with FD feature, Stocks & REIT holdings.


    • Gaurav Rastogi

      January 26, 2020 AT 00:18

      Thanks for the feedback Vinay, some of these are already in the pipeline


  • sunil bhatia

    January 30, 2020 AT 16:16

    1.
    kuvera is an excellent app.
    2.
    urgently needed uploading of huf as a family member.


  • Nikunj

    February 3, 2020 AT 15:51

    Hi

    Why Nippon India Liquid Growth Direct Plan is getting added to every goal?

    I don’t see it listed in the article.

    Regards


    • Gaurav Rastogi

      February 6, 2020 AT 01:04

      This article lists our equity portfolio only. For any goal, we will recommend an equity basket and a debt fund for proper asset allocation based on your risk profile. Nippon liquid fund is our recommended fund on the debt side as we do not recommend taking credit risk.


      • Naveen

        May 15, 2020 AT 11:30

        Dear Gaurav , Could you ask your team this to update pls — Nov 2019: Kuvera recommended portfolio update. I have a question do your team rebalance an existing portfolio Due to Oil and Covid disaster.


        • Gaurav Rastogi

          May 21, 2020 AT 08:17

          We will publish an update soon.


          • Ananth

            May 22, 2020 AT 09:46

            Yes very much needed. I stopped my SIPs in my regular funds in DEMAT account and been waiting to start SIPs using goal based approach in Kuvera. Have been going through all the blog articles & defined my goals. Since the recommended portfolio update seems way back in Pre-Covid era whats your suggestion ? Should i start SIPs now & worry about shifting to new fund recommendations later or wait till new recommended portfolio update & start SIPs if its around the corner very soon ?


          • Rahul

            May 25, 2020 AT 17:33

            When can we expect an update for this?


          • Gaurav Rastogi

            May 26, 2020 AT 02:26

            Early next month (i.e June)