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Conservative Model Portfolio in India | Yadnya Investment Academy

Conservative Model Portfolio (Methodology Document)

Published on 31 May 2021 Views 8162 Comments 2

Introduction to Model Portfolios

With Yadnya’s Model portfolios, what we are offering is making complicated investing simple. These Model Portfolios use 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), Mutual Fund Subscription (MFYadnya.in) and Financial planning product (FinPlanYadnya.in). The idea is to utilize 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 are asset allocation strategies followed by tactical sectoral allocation at stock level. As Roger G. Ibbotson, Professor of Finance at Yale School of Management says, “On average, 90 percent of the variability of returns and 100 percent of the absolute level of return is explained by asset allocation.” For conservative investors we do not want too much variability in the returns. The Conservative Model Portfolio, true to its investment objective of returns by taking low risk, a healthy allocation is done between both equity, debt, and money market asset classes. Exposure to large cap equities is through Stocks and Mutual Funds both while the exposure to Fixed Income and Money Market is purely through Mutual Funds.

 

Methodology 

Conservative Portfolio

Investment objective

The aim is to generate returns by creating a large cap and debt-oriented portfolio with low risk.

Strategy

Buy and Hold investments with a time horizon of 3 years in stocks and mutual funds with low risk and consistent performance.

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 low-risk large cap and debt-oriented portfolio, we suggested this strategic allocation of 50% in Mutual Funds (Both Equity & Debt), 30% in Direct Equities and 20% in Money Market Funds.



Stock Selection Approach

We are a firm believer of Warren Buffett’s principle where he says that an individual should invest only in the companies whose business they understand. And 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 into consumer-centric businesses that grow with consumption and businesses that are into financing this retail consumption. We are a believer in India’s consumption story, which include sectors such as – Banking & Finance, FMCG, Consumer Durables, Automobile, Paints, Healthcare, Retail, Telecom, Tourism, Real Estate etc. This report by World Economic Forum gives a glimpse about 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 in making their brand and product visible to retail investors. We have purposely stayed away from sectors like airlines.

We follow a proprietary FIVE-G framework for bottom-up analysis of stocks. The framework of Financials, Industry Analysis, Valuation, Enterprise (Business Model) and Governance, helps in analyzing stocks and with 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 low-risk profile, the allocation to this asset class when the model portfolio was initiated in Dec 2019 was 20% for this portfolio; this was later changed to 15% in March 2020 rebalancing and now in Sep 2020 rebalancing we have brought this allocation back to 20%. We have primarily considered 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 - MFYadnya.In for shortlisting and adding equity mutual funds, debt funds and ETF/index funds in model portfolios.

Guidelines

  1. 10 - 15 stocks portfolio
  2. Stock portfolio - Minimum exposure of 5% and maximum 10% to avoid concentration risk.

 

Is this model portfolio for you?

This conservative portfolio is appropriate for an investor with a low risk tolerance and a time horizon longer than 3 years. Conservative investors are not willing to accept periods of extreme market volatility and are seeking returns that match or slightly outpace inflation. They mostly prefer high dividend yielding or less volatile Blue-chip stocks and steadier & predictable bonds or money market instruments.

The highest gain this portfolio might have in a calendar year might be 15% and the worst decline might range from 5 to 10%.

Here are typical profiles who can refer to this portfolio –

1. A low risk taker 20 – 30 Years old investor with high liabilities and low savings rate

2. A low risk taker 35 – 50 years old investor with dependents and average or below average savings rate

3. A medium or low risk taker above 50 years old investor

Time Horizon – Min. 3 years

Benchmark – Crisil Hybrid 35+65 Aggressive Index

Rebalancing Quarterly

Important Dates

Inception Date – December 1st, 2019

Launch Date – December 6th, 2019

Last reviewed – September 15th, 2021

Next Rebalancing on – December 15th, 2021

Performance

This chart shows the portfolio’s cumulative performance starting from Jan 2015 until the latest month-end. The Conservative Model Portfolio is compared against Crisil Hybrid 35+65 Aggressive Index cumulative returns as a benchmark.

Conservative Portfolio's performance against Crisil Hybrid 35+65 Aggressive Index

Time Period

Portfolio Return %

Crisil Hybrid 35+65 Aggressive Index Return %

1 month (from August 31st to September 30th)

3.6%

4%

3 months

8.85%

8.46%

1 Year

43.06%

34.84%


 

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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