A reader writes, “Which is more suitable for a long-term goal? Aggressive hybrid funds or multi-asset funds?” So in this article, we compare a hybrid portfolio with a multi-asset portfolio to arrive at an answer.
We cannot compare these funds because multi-asset funds are quite new. Earlier, we compared CRISIL Aggressive hybrid index (with 65% equity) with an in-house multi-asset index: Multi-asset mutual funds: performance analysis. This article makes the comparison more uniform by having the same bond index for both portfolios. This comparison will give us a reasonable answer to the titular question.
Hybrid portfolio: This has 65% of equity (Sensex TRI) and 35% of gilts (IBEX-Isec index)
Multi-asset portfolio: This has 65% of equity (Sensex TRI) and 25% of gilts (IBEX-Isec index), and 10% of Gold (INR)
These are asset allocations are close approximations of actively managed mutual funds available in the market. The evolution of both indices is shown from August 1996.
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Even with a cursory inspection, it should be clear enough that replacing gilts with 20% gold does not make a significant difference. Sometimes the multi-asset portfolio does better, and sometimes not. There is some kind of “cycle” with unknown frequency.
This “cyclic” behaviour is better seen with 5-year rolling returns. That is, returns over every possible 5-year duration bet Aug 1996 and Oct 2022 are plotted below.
The cyclic behaviour is also seen over ten years.
The volatility measured by the standard deviation over every 10-year period is shown below. Both portfolios have similar volatilities.
The above results indicate that adding gold to a portfolio does not significantly affect volatility. Sometimes it is a bit more rewarding, and sometimes not. It is impossible to predict our experience once we start investing. See: Can I add 10-20% gold to my 15-year investment portfolio?
So which are better for long term goals? Aggressive hybrid funds or Multi-asset funds? There is not much difference bet an aggressive hybrid portfolio and an equity-oriented multi-asset portfolio. So, either fund choice should be fine for long-term goals. Some multi-asset funds can have less than 65% equity, affecting their return and risk profile. Therefore investors must pay attention to the fund’s benchmarks and asset-holding pattern history.
I am invested in the ICICI Multi-asset fund for my son’s future portfolio right from when it was known as the ICICI dynamic fund. Since it has a sizeable AUM at the time of the ctaogry change, it is likely to be equity-oriented in future. See Lessons from investing for my son’s future for the last 12+ years.
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