stock market strategy: ETFs are suitable for all types of investors: Chintan Haria, ICICI Prudential AMC
When the index is on a downward trajectory, how important should ETFs be? Is it time to increase the allocation to ETFs?
ETFs should be treated as part of the overall equity allocation. We treat ETFs and active funds no differently. Every market decline is an opportunity to increase equity ETFs subject to your overall asset allocation. If you are a savvy investor, you can choose thematic ETFs. Otherwise, ETFs based on a large market capitalization are a good starting point for anyone looking to improve their portfolio’s equity allocation.
On the one hand, individuals are so interested in direct investment in stocks, and on the other hand, ETFs are also gaining popularity. Are ETFs suitable for all types of investors?
ETFs are ideal for all types of investors. The pull is visible across all investment products as savings in India are steadily increasing. Today, people are open to investing their savings outside of traditional investment options. As a result, there is an increase in investor interest in stocks, mutual funds and other financial instruments.
In general, people are hesitant to invest in ETFs due to liquidity issues. What are your opinions?
Similar to the trend seen in the West, as the popularity of ETFs increases in India, the liquidity aspect will improve on exchanges. Additionally, regulators as well as industry players are constantly working on ways to improve ETF liquidity. Going forward, we believe liquidity should not be a concern.
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What are the risks to be aware of when investing in ETFs?
Like an equity mutual fund, when investing in an equity ETF, there is market risk. Therefore, stock ETFs are meant to be part of an investor’s long-term portfolio. In addition, depending on the choice of ETF, there may be ETF-specific risks which may take the form of sector or thematic ETFs.
In your opinion, how relevant are commodity ETFs in a portfolio?
As part of a balanced overall asset allocation, we believe that alongside equities and debt, commodity ETFs (gold and silver) have an active role to play in an investor’s portfolio. Specifically, gold, which acts as a hedge against inflation in times of uncertainty, goes through periods of consolidation but has been known to deliver large returns in a short period of time. Additionally, if there is an outflow of equity and debt, gold can be a potential beneficiary.
What type of investor should consider smart beta ETFs?
The Smart Beta ETF is an extension of traditional ETFs. The difference here is that stock selection and/or weighting will be based on a particular factor. Some of the most prevalent factors are low volatility, value, growth, and momentum. Investors with a nuanced understanding of ETFs can build a portfolio with smart beta ETFs.
Due to its stupendous returns over the past year, IT ETF was gaining momentum. What advice would you give to an investor invested in such a scheme given the recent correction?
Very often, investors tend to invest in sectors that are trending at a certain time. At times like these, our advice to the investor is to check whether the current momentum can be sustained over the next few years and whether valuations are attractive enough at the current rate of growth for wealth creation opportunities in this sector. particular. Often, when a sector offers a return after a long period of underperformance, it is very difficult to time the bottom and most investors enter at a relatively higher level, resulting in a poor investment experience.
Since investing in the right sector at the right time can be difficult for a non-professional investor, our advice to investors is to invest in thematic passive strategy FoFs. Here the fund manager, depending on the attractiveness of the sector, will invest in a set of sectors and rotate sectors as needed.
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