Deep dive into the performance of Timeless Asset Allocation smallcase

Since the beginning, we had different themes, ideas, and strategies available on our platform as smallcases. Our goal was not to suggest or recommend which idea/strategy was best for the investor but to offer a bouquet of interesting and relevant curated stock portfolios. Investors were free to choose the smallcase that suited their requirements.

After observing investor behavior in times of unexpected market volatility we realized that to ensure investors remain invested in equities over the long term, they need an anchor product in the portfolio that can fulfill the following requirements:

• Provides significantly higher returns than traditional bank instruments like savings and FD
• Is very stable so that money can be invested and taken out at any point in time without worrying about market tops and bottoms

Creating Timeless Asset Allocation smallcase

With the above two objectives in mind, we started working towards building such a product.

We settled on providing a core-satellite approach on our platform.

The product mentioned above should act as the core of the overall investor portfolio and the pure equity themes and ideas should act as satellites. You can read more about the core-satellite approach here.

Finally, we made all the relevant changes like

• Building India’s first DIY platform for retail to execute core-satellite investment approach
• Making smallcase the only platform providing the option to seamlessly sell fractional shares of Liquid BeES ETF along with dividend tracking for the same

and launched Timeless Asset Allocation (previously known as the All Weather Investing) smallcase. Post-launch, we communicated the benefits of having a core in the portfolio to each smallcase investor and made it a permanent option on the investments tracking page. Without imposing anything, we wanted to ensure that the benefits of the core portfolio are communicated to every smallcase user.

How does Timeless Asset Allocation smallcase qualify to become a core portfolio? 

The AWI smallcase provides the optimal asset allocation mix for long-term wealth creation. Asset allocation is of utmost importance when it comes to investing because it shapes an investment portfolio’s risk exposure, return potential, and alignment with the investor’s goals. By strategically combining different assets, investors can create a portfolio that aims to provide optimal risk-adjusted returns while managing potential downsides.

Let us take a closer look at the returns generated by AWI across different market cycles and test the claim that it is recession-proof. For the purpose of this exercise, we will consider both backtested and live data. Read the following blog to understand more about backtesting.

The above table makes it clear that the AWI smallcase has lower drawdowns as compared to the universe of large-cap stocks during market downturns. Drawdown measures the downside risk of a stock/portfolio. The portfolio considers expected volatility as one of the factors to determine the weights of the constituents during every rebalance period. Hence the portfolio tends to underweight equities during times of high market volatility. This translates into lower drawdown during bear markets. 

Extrapolating this, the smallcase tends to outperform the universe of large-cap stocks during bearish cycles and tends to underperform during bullish phases. However, due to lower drawdowns, recovery is quicker, as can be seen in the above table, because of which the compounding effect kicks in. Over the long term this strategy has been seen to outperform the broader markets handsomely while taking lesser risk throughout. This can be seen from the below annual volatility and annual risk-adjusted returns charts. While the annual volatility is consistently lower than that of the universe of large-cap stocks, the risk-adjusted returns have been higher in 12 out of 17 instances. 

Conclusion

So in conclusion, does the AWI always generate positive returns? Certainly not! Remember the AWI invests in 3 different asset classes – equity, gold, and debt. While equity and gold asset classes offer volatile returns, liquid bees provide low-risk returns and high liquidity. This asset mix certainly reduces the extent and frequency of negative returns.     

The Timeless Asset Allocation smallcase significantly minimizes the damage that a sudden market fall or a prolonged recession can have on an investor’s portfolio and protects the portfolio in all types of rough weather. Hence it is an excellent fit for a core portfolio and is good for all types of investors.