Asset Allocation for managing risk & optimizing returns

Published On: 23-Oct-2018

Asset allocation: The on-going equity market drop once again highlights the need for investors to follow a prudent asset allocation strategy. Every asset class goes through cycles. Equities are a volatile asset class with attractive long term returns. Similarly fixed income returns can be attractive over shorter time periods though over the longer term it typically lags equities. This reinforces the need for asset allocation in order to manage risk and optimize returns.

Why It Matters: Think of a situation where all the investments are in a single asset class. In case of equities when the market is upbeat, it feels very good. But this can become very uncomfortable when the market goes through steep declines or periods of low returns. Similarly, debt and gold assets have their own cycles where they go up or down. The advantage of an asset allocation product is that the cycles could be different for each asset class and hence combining them in a single product actually lowers the volatility.

Asset Allocation

Presenting UTI Multi Asset Fund - a multi asset allocation fund that dynamically allocates to equity with a dash of debt and gold. The fund gives the advantage of all the three asset classes and uses an in-house model to dynamically change allocation to equity based on valuations.  

Model brief - Our proprietary model works on following method with an aim to guide equity allocation based on market valuations.

Fund Manger’s view on Model‘s inputs in last 1 year: The model on a one year basis has thrown up several recommendations (scale up / scale down in equity allocation) to benefit from market valuations.  The Model is run on a weekly basis and it suggests an equity allocation. The suggested equity allocation can range from 40% to 80%.However, in order to maintain the equity status of the fund we also engage in arbitrage transactions to maintain the aggregate equity allocation at above 65%.If the equity allocation in the fund differs from that suggests by the model by more than 5% then a rebalancing is carried out. Given the elevated level of the markets, the model has recommend for lower allocation to equity over the last 1 year given the fact that all the key valuation numbers are quoting higher than long term averages. In the last 10 months, the model has given us three signals.Here are the summary of model‘s recommendation

UTI Multi Asset Fund Investment Philosophy

One more piece of information to highlight our net equity (unhedged equity) position against the nifty P/E over last two years,


Fund‘s investment philosophy:

The fund works on following philosophy,

Why an investor should consider allocation to UTI Multi Asset Fund,

  • Provides exposure to multi asset class through a single fund

  • Pursues regular & guided rebalancing towards optimization of risk and returns

  • Relieves investors from tracking different asset class market

  • Tax efficiency as per current tax laws

In short,a fund that aims to help investor remove biases (greed and fear) and navigate prudently through different market cycles.

Type of scheme: An open ended scheme investing in equity, debt and Gold ETFs.

This product is suitable for investors who are seeking*:

  • Long term capital appreciation
  • Investment in equity, debt and Gold ETFs with a minimum allocation of 10% in each asset class

*Investors should consult their financial advisors if in doubt about whether the product is suitable for them is suitable for them


Key Terms:

MEW: Model Equity Weight

MMIs - Money Market Instruments

ETFs - Exchange Traded Funds


Author Bio

V Srivatsa
Mr. V. Srivatsa is an Executive Vice President & Fund Manager –Equity at UTI AMC Ltd. He is a B.Com graduate, C.A., C.W.A. and has a PGDM from IIM, Indore. He has been with UTI AMC since 2002. Prior to joining UTI he has worked with Ford, Rhodes Parks & Co., Chartered Accountants for 2 years and as Officer-Audit in Madras Cements Ltd. He started in UTI AMC in the Department of securities research covering varied sectors such as Information Technology, Capital goods and metals. He was promoted as fund manager offshore in December 2005 after a three year stint in the DOSR. He was given additional responsibilities of equity portion of hybrid funds in October 2009. He reports to the Head - Equities for both the domestic & hybrid equity schemes.