Aggressive Hybrid Funds vs Multi-Asset Funds: Which are better?

Published: December 19, 2022 at 6:00 am

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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Normalised evolution of 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold
Normalised evolution of 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold

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.

5 year rolling returns for 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold
5 year rolling returns for 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold

The cyclic behaviour is also seen over ten years.

10 year rolling returns for 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold
10 year rolling returns for 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold

The volatility measured by the standard deviation over every 10-year period is shown below. Both portfolios have similar volatilities.

10 year rolling volatility (standard deviation) for 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold
10 year rolling volatility (standard deviation) for 65% equity + 35% gilts vs 65% equity + 20 gilts + 15% gold

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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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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