Markets Will Remain Volatile, But Here’s How A Strategic Portfolio Comes To the Rescue
Jun 21, 2018

Author: PersonalFN Content & Research Team


Financial markets are under pressure these days because of on-going tariff war between the U.S. and China.

What initially looked as political rhetoric is now proving to be the real threat that has grown out of proportion.

While addressing the National Federation of Independent Businesses in Washington on the occasion of 75th-anniversary celebrations, President Trump said, “China has been taking out $500 billion a year out of our country and rebuilding China.  I always say, “We have rebuilt China.”  They’ve taken so much.  It’s time, folks.  It’s time.” (Source Whitehouse)

Such language is sending shivers down investors’ spine as China is likely to retaliate. American corporations doing business in China are eating humble pie in stock markets these days. And so as the agricultural commodities shipped from the U.S. to China.

Such market adversities affect the investors’ sentiment badly. But as and when markets recover from such shocks, they stage massive rallies. Unfortunately, investors lose hope and pull out by the time market recovers.

What should be your strategy to counter such uncertain times?

But before we discuss the ultimate strategy that will help you beat the volatility, let’s first check adversities that the market has survived in last three decades:

  • Gulf war

  • Fall of Soviet Union

  • Asian currency crisis

  • Bust following the dotcom boom

  • Global financial crisis

  • The sovereign debt crisis in Eurozone

Therefore, there’s no reason to believe that the world won’t be able to tackle the threat of tariff wars.

At present, the Indian markets face multiple issues which might spook your portfolio temporarily.

They are as follows:

  • Federal Reserve is hiking interest rates, making emerging markets vulnerable and unattractive investment destinations for global investors

  • The Reserve Bank of India (RBI) is also raising policy rates which could cause some slowdown in the private investment capex cycle

  • Oil prices are heading north, inflicting  the risk of inflation globally

  • Bad loans are inflating among number of banks in India

  • There is political instability ahead of 2019 Lok Sabha elections

But each one of these adversities can be worthwhile investment opportunities, if you are prepared for it.

Do you remember, markets had hit the upper circuit twice when the results of 2009 Lok Sabha elections were announced.

But then, a majority of investors weren’t invested in equity markets because of global financial crisis and uncertainty. 

Now the strategy…

At PersonalFN, we have formulated the “core and satellite strategy” for mutual funds investing and defined it differently, making it relevant for Indian investors.

“Core” applies to the more stable, long-term holdings of the portfolio; while the term “satellite” applies to the strategic portion that would help push up the overall returns of the portfolio, across market conditions.

At PersonalFN we believe, if you apply this approach to invest in equity oriented mutual funds, you can get the best of both worlds, that is, short-term high-rewarding opportunities and long-term steady-return investing, and the good thing is, it works!

[Read: Willing To Take Some Investment Risk? Mutual Funds Are Your Best Bet

The ‘Core and satellite’ investing is a time-tested strategic way to structure and/or restructure your investment portfolio.

As far as your mutual fund investments are concerned, the ‘core portfolio’ should consist of large-capmulti-cap, and value-style funds, while the ‘satellite portfolio’ should include funds from the mid-and-small cap category and opportunities funds. 

PersonalFN’s research states that 60% of the portfolio should be reserved for Core mutual funds and the balance 40%, for the Satellite mutual funds.

But what matters the most is the art of cleverly structuring the portfolio by assigning weights to each category of mutual funds and the schemes picked for the portfolio.

Moreover, with changes in market outlook, the allocation to each of the schemes, especially in the satellite portfolio, needs to change.Now let’s look at what goes into creating a strategic portfolio -

  • The selected mutual funds should be amongst the top scorers in their respective categories. The portfolio should be built with a time horizon of at least 5 years

  • It should be diversified across investment style and fund management

  • Each mutual fund should be true to its investment style and mandate

  • The mutual funds should be managed by experienced and competent fund managers and belong to fund houses that have well-defined investment systems and processes in place

  • Each fund should have seen at least three market cycles of outperformance 

  • The portfolio should contain an adequate number of schemes in the right proportion. In short, it should carry the most optimum allocation to each scheme and investment style

  • The number of funds in the portfolio should not exceed six or seven

  • No two schemes should be managed by the same fund manager

  • Not more than two schemes from the same fund house should be included in the portfolio

If you follow this diligently and astutely structure the portfolio by assigning weights and keep reviewing them with change in market outlook, you will draw in the following benefits of following this core and satellite approach:

✔ Your portfolio will be optimally diversified;

✔ The risk to your portfolio would reduce;

✔ You can benefit from a variety of investment strategies;

✔ Create wealth cushioning the downside;

✔ Potentially outperform the market; and

✔ Would reduce the need for constant churning

Isn’t that great?

Want to own an Ultimate Strategic Portfolio Ready-made Portfolio based on the core and satellite approach of investing?


PersonalFN offers you this great opportunity:

The 2018 Edition of PersonalFN’s Premium Report, "The Strategic Funds Portfolio For 2025"

Strategic Funds Portfolio For 2025

If you’re looking for “high investment gains at relatively moderate risk”, this report is extremely worthy.

In this report, PersonalFN will provide you with a readymade portfolio of its top equity mutual funds schemes for 2025 that have the ability to generate lucrative returns over the long term.

PersonalFN’s “The Strategic Funds Portfolio for 2025” is geared to potentially multiply your wealth in the years to come. Subscribe now! 

Happy Investing!

Add Comments

Daily Wealth Letter

Fund of The Week

Knowledge Center

Money Simplified Guides (FREE)

Mutual Fund Fact Sheets

Tools & Calculators