Edited excerpts from a chat:
How does the DSP Multi Asset Allocation Fund’s quantitative framework dynamically recalibrate exposure to domestic equities, global equities, debt, commodities and real assets to limit declines while maintaining upside participation? What is your current allocation mix, and how has it changed over the past year?
When done well, asset allocation reduces the need to forecast macro outcomes and instead focuses on building a portfolio that can participate in growth while absorbing price declines. That philosophy guides our approach.We operate within predefined exposure ranges for each asset class, derived from long-term data on returns, volatility and correlations. Allocations generally move within these ranges, but we allow measured tactical shifts when valuations or risk-return dynamics change meaningfully.
For example, we keep total equity exposure closer to ~50% when valuations are too high, and increase it to ~70% when earnings visibility and margin of safety improve. Within equities, we actively allocate across sectors and regions to increase alpha and manage risk.
We maintain 10 to 30% high quality fixed income to provide stability and benefit from accruals and potential capital gains during economic slowdowns. Income-producing real assets such as REITs and InvITs provide returns with the potential for growth. Commodities, typically 15 to 20%, largely precious metals, serve as a hedge during inflation or system stress.
Over the past year, equity exposure has remained closer to 50%, with a bias towards large caps. We trimmed precious metals after a strong rally as part of a disciplined rebalancing, and increased allocation to REITs and InvITs where yields and total return potential looked attractive.
As gold and silver become less attractive, could multi-asset funds lose their appeal?
Commodity cycles are inherently volatile. Sharp rallies are often followed by periods of consolidation or correction – that’s the nature of this asset class.However, the case for investing in multiple assets is not based on the recent performance of any particular asset, be it gold, equities or debt. It is built on diversification. The goal is to combine assets that behave differently over cycles so that the overall trajectory of the portfolio is smoother and more resilient.
A moderation in precious metal prices in the short term does not alter the structural role that commodities play within a diversified portfolio. Multi-asset funds are designed for investors who prioritize consistency of results over chasing the best performing assets of the moment.
What does your quantitative model signal on gold and silver? How have you dealt with the recent setback?
Following the sharp rally in precious metals, our framework suggested broader positioning and we reduced exposure as part of cautious profit booking. That said, even large allocations will reflect short-term volatility when corrections occur.
We consider such withdrawals to be an inherent part of investing. Our focus is on right sizing and disciplined rebalancing rather than trying to accurately time peaks or troughs, something that is extremely difficult to execute consistently. The goal is risk management and long-term building, not short-term perfection.
How do you assess currency risk and global valuation cycles?
Our approach to international equities is rooted in diversification across countries, sectors and currencies. Rather than focusing on a single region or currency, we spread our exposure across markets such as the US, Europe, Japan and parts of Asia.
This multi-country and sector approach reduces the impact of valuation surpluses or currency fluctuations on each internal market. Over time, currency cycles tend to reverse, and global diversification increases portfolio resilience while expanding the opportunities offered beyond domestic markets.
Which filters do you apply for REITs and InvITs?
We focus on three pillars: sponsorship quality, asset stability and revenue visibility.
We prefer platforms backed by strong sponsors with portfolios of income-generating assets with high occupancy rates that offer revenue visibility and growth potential. Distribution, sustainability of yield and the ability to grow that yield are critical.
From a portfolio construction perspective, we consider REITs and InvITs to be between debt and equity in terms of risk and return. When their total return potential significantly exceeds bond yields and equity valuations appear less attractive, they become attractive within a multi-asset framework.
Do multi-asset strategies structurally perform better in sideways markets?
It is difficult to generalize because the outcomes depend on how different asset classes behave at that stage. Recently we have seen periods where equities underperformed while other asset classes delivered strong returns, which obviously benefited multi-asset strategies.
Over the longer term, disciplined multi-asset frameworks tend to deliver healthier compositions with lower volatility compared to pure equity portfolios. The benefit does not come from market timing, but from structured diversification and systematic rebalancing.
How should investors position multi-asset funds?
We believe that multi-asset allocation funds are best viewed as a core portfolio allocation for long-term investors.
Their design, which combines growth, income and diversification, makes them well suited for investors looking for balanced participation across cycles, without having to actively manage asset shifts themselves.
What is your baseline outlook for the next twelve to eighteen months across asset classes, and which allocation bucket currently offers the most attractive risk-adjusted opportunities?
After the strong returns we have seen in various asset classes in recent years, we believe that return expectations should be moderated. That said, opportunities still exist, especially through disciplined, bottom-up stock and sector selection within equities.
Rather than relying on broad asset class expansion, we expect returns to be more differentiated and driven by fundamentals. In such an environment, diversification and active selection become even more important.
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