Moderate Model Portfolio – Methodology Document – Sep 2024
Introduction to Model PortfoliosWith Yadnya’s Model portfolios, what we are offering is making complicated investing simple. These Model Portfolios use the same
asset allocation philosophy that many institutional investors utilize. The main pillars of the model portfolios are our research-based products – Stock-O-Meter (
https://investyadnya.in/stock-o-meter), Fund-O-Meter (
https://investyadnya.in/fund-o-meter) and the financial planning product (
https://investyadnya.in/financial-planning). The idea is to utilise quantitative and qualitative factors observed based on our extensive research for suggesting model portfolios that make sense for individual investors like you. The foundation of these portfolios is an asset allocation strategy followed by tactical sectoral allocation at the stock level. As Ray Dalio, the famous Hedge Fund Manager and founder of Bridgewater says, “I think that the first thing is you should have a strategic asset allocation mix that assumes that you don't know what the future is going to hold.”
For moderate risk profile investors, optimum allocation is done between equity, debt, and money market asset classes. Exposure to equities is through Stocks and Mutual Funds while exposure to Fixed Income and Money Market is purely through Mutual Funds.
Methodology
Guidelines1. 10 – 15 Stocks Portfolio
2. 4 – 6 Mutual Funds Portfolio
Moderate PortfolioInvestment objectiveThe aim is to generate reasonable growth without taking too much risk by creating a
multi-cap, growth-oriented portfolio.StrategyBuy and Hold investments with a time horizon of 5 years in stocks and mutual funds with strong fundamental characteristics and sound management.
The rationale for this Portfolio
We have included three modes of investment vehicles in this model portfolio - Stocks, Mutual Funds, and Fixed Income/Debt assets. For meeting the investment objective of a growth-oriented multi-cap moderate risk portfolio, looking at the long-term expected returns and risk levels of each asset class based on our long-term view of the Indian economy and financial market, we suggest this strategic allocation of 56% in Direct Equities, 34% in Equity Funds and 10% in Debt Funds.
Please note this model portfolio is suitable for investors with moderate risk tolerance and risk appetite. Typically, to begin investing, we recommend starting with the mutual fund route, wherein you rely on the professional expertise of fund managers to make stock choices for you. After the initial learning curve, we suggest following it up with the approach of a Mutual fund-driven portfolio with some percentage of direct stock exposure.
Stock Selection Approach:
We are firm believers in Warren Buffett’s principle which says that an individual should invest only in the companies whose business they understand. Therefore, we have chosen
“Consumption” as the core theme for constructing these portfolios along with some peripheral stocks i.e., investing in companies that are consumer-centric businesses that grow with the consumption and businesses that are into financing this retail consumption. We are a believer in India’s consumption story, which includes sectors such as – Banking and finance, FMCG, Consumer Durables, Automobile, Paints, Healthcare, Retail, Telecom, Tourism, Real Estate, etc.
This report by the World Economic Forum gives a glimpse of India’s consumption story and expected growth in the next 10 years. There are a few peripherals stocks too that do not fit completely into the consumption theme, but their inclusion is driven by the strong fundamentals of the company and the company’s effort to make their brand and product visible to retail investors. We have purposely stayed away from sectors like airlines.
We follow Yadnya’s
FIVE-G framework for
bottom-up analysis of stocks. The framework of Financials, Industry Analysis, Valuation, Enterprise (Business Model), and Governance helps analyse stocks and the stock selection process within each sector’s tactical allocation.
Fund Selection Approach:
Mutual Funds help in easy diversification and tapping on professional fund management and research expertise via an easily accessible channel. It is truly an invest-and-forget type of product unless and until there is a significant change in management or a market event-based trigger.
Debt funds being less volatile in nature, help as a cushion from an asset allocation perspective and by investing in a different asset class, we are diversifying our portfolio risk. However, given the growth and medium risk objective, the allocation to this asset class is at 10%. We have considered corporate, liquid, and money-market funds in this asset class.
ETFs and Index funds are passive investment funds that are linked to an underlying benchmark index and provide a low-cost alternative for taking exposures in the financial market.
We have utilized our proprietary
fund selection FRRISK methodology -
https://investyadnya.in/fund-o-meter - for shortlisting and adding equity mutual funds, debt funds, and ETF/index funds in model portfolios.
Is this model portfolio for you?
This moderate portfolio is appropriate for an investor with medium risk tolerance and a time horizon longer than five years. Moderate investors are willing to accept periods of moderate market volatility in exchange for the possibility of receiving returns that outpace inflation by a significant margin.
Most investors tend to fall into the moderate category, which means they want to achieve good returns but are not comfortable taking high levels of market risk. This moderate portfolio might get an average annualized return of 11-12%. Its best yearly gain might be 15-20% and its biggest decline in a year may range from 20-25%.
These are typical investor profiles who can refer to this portfolio –
1. A low-risk taker 20 – 30-year-old investor with limited liabilities and above-average savings rate.
2. A medium risk-taker 35 – 50-year-old investor with dependents and average or above-average savings rate.
3. A high-risk taker above 50-year-old investor with limited liabilities and a good retirement corpus.
Time Horizon – Min. 5 years
Benchmark – BSE 200
Rebalancing – Quarterly
Important Dates:
Inception Date – December 1st, 2019
Launch Date – December 6th, 2019
Last Market Driven Rebalancing – January 21st, 2022
Last Quarterly Rebalancing – August 24th, 2024
Next Quarterly Rebalancing – November 30th, 2024
Portfolio Performance as of 01st November 2024:
This chart shows the portfolio’s cumulative performance since inception until the latest month-end. The Moderate Model Portfolio is compared against the BSE200 TRI Index’s cumulative returns.
Disclaimer: The information on this site is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF. All these portfolios are created based on our expert’s experience in the market. These Model Portfolios are prepared by SEBI Registered RIA.
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