portfolio: Why is it right time to reshuffle your portfolio? Feroze Azeez answers

“Like you rightly pointed out rejigging the portfolio or monitoring your portfolio is an annual exercise which you always should do. But there are some periods which are more momentous from a perspective of their timing that at that point in time reviewing your portfolio, making changes makes perfect sense,” says Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited.

You are going to help our viewers with a five-year investment plan. Be it someone who will be forming a portfolio now or someone who already has an existing investment portfolio, key reasons before you give us the right bets or strategies, I want you to help our viewers understand why is it the right time to maybe reshuffle or rebalance your portfolio, not that you should not be doing this, this has to be a very normal procedure as far as having an investment portfolio is concerned, but then now why is it the time to go in for it?
Like you rightly pointed out rejigging the portfolio or monitoring your portfolio is an annual exercise which you always should do. But there are some periods which are more momentous from a perspective of their timing that at that point in time reviewing your portfolio, making changes makes perfect sense. Now if you come to the contemporary situation that general election is over, the mandate of the new government is also reasonably clear, the NDA is going to form a government in 99% of the situations, which is going to be a stable government because you have 292 seats on a pre-poll alliance, UPA 1, UPA 2 also you would not see one single party having a majority greater than 272, 273, so it is a stable government, that is one thing behind us now.

Second, most important is markets have gone through a lot of change, not just on the headline Nifty number, if you look at last year Nifty’s performance from 17,000 odd to 23,000 today, that is a reasonable move. And if that is the Nifty number, you see midcaps having run up last financial year 60%, smallcaps approximately have run up 60%, so this is a dramatic change and in terms of price and the broader market rally. So, whenever you see a large event, a large event is over, huge change in price that is a great start point to say this is a point at which a huge review is required. When you review, what all do you review? You review asset allocation of your full portfolio, you review product class selection, you review scheme selection, all these three items deserve a full-fledged zero-based review for sure.

Along with this, one more mantra of making money in the market is earning growth, dividend yield and PE. But then talking about the portfolio strategies, how should one begin with? Assuming someone already has a diversified portfolio, we have been seeing a lot of investor interest going towards sectoral and thematic allocation, a lot of investors looking at fund manager strategies because this is the time when even fund managers would want to rejig their portfolios. Obviously, a lot depends on the kind of the cabinet formation and who gets the ministry and the kind of policy and reform announcements that we all are waiting. Budget is a very main event for us to get an idea of where exactly the government is going to move in terms of their policies. So far, it is said that economy-facing policies are not likely to be changing. But having said that, what is the first step towards changing your portfolio and making it a five-year profitable portfolio one should be taking?
People watch so much entertainment, but they get bored in two minutes of watching something which can actually change their financial status. So, I would say the sure shot way of making money and creating a foundation for investing is look at all the shows you have been putting together with the great experts other than me, of course, I would not call myself one, that is one suggestion I have to all viewers.

Coming to the more important question which you really posed and it was an important question is I think sectorial funds is one thing you touched upon. I have been a firm believer that an investor should not touch a sectoral or a thematic fund. Why? Because thematic is okay. Sectoral are very specific, financial services, pharma, IT, all those are very-very narrow mandates given to a fund manager.

Generally, when an investor buys any of these sectors or themes, the theme is already very popular. Like just 15 days back, everybody was saying buy defence, infrastructure, railway, highway and everything and the diversified fund manager, if you bought a diversified fund, the fund manager is already skewed his portfolio to defence, highway, railways, infrastructure.

And then on top of it, you also buy 25% of a thematic fund, then you are doing the same thing. Then, suddenly you have so much exposure to specific sectors, because the normal fund manager is also skewing there and you are buying specifically, separately, an extra allocation. This is the mistake which most people did in 2008. So that is a learning from the older generation to the Gen Z, that is point one. Point two, there are different fund managers following different styles. The more popular nomenclature and style is growth and value. Growth is buy something which is doing well, which is growing, the company is growing faster, may not be available at the cheapest price, that is the definition of growth style.

Buy anything, which is growing as a business, your price inelastic, that is growth. Value is buying some company which is cheap, might not be growing astronomically, but it is available to you at a cheap price today. When everybody realises it is cheap, you will make money and everybody will come to buy that share. These are the two styles. There are two AMCs which distinctly follow this style across several schemes, which is Nippon and HDFC are generally more value based.

So, I would say a blend is what will work well in the next five years rather than one of those. Value did well for the last three years, but I think next five years, it is going to be more muted. Both the sides, I think a blend is what is more critical for the next five years.