CORONA VIRUS - MELTDOWN Time to increase the EQUITY EXPOSURE !!!

CORONA VIRUS - MELTDOWN Time to increase the EQUITY EXPOSURE !!!

CORONA VIRUS is a real threat which is disturbing the world and impacting the global economy.

However the world has witnessed several such crisis in the past viz. epidemics, pandemics, global financial crisis and many more.

One common thing witnessed in such crisis is the knee jerk reaction of the markets and plummeting the markets to new bottoms as if there is no tomorrow.

While these crisis are real and it impacts the world economy and does damage to several people, but the stock market falls are unreal and far beyond such damages.

When and how this crisis will get over is difficult to predict and can only be said in hindsight. However such crisis historically hasn't lasted long as the developed world is competent enough to come out with solutions to address such crisis.

It is difficult to predict the magnitude and impact of such crisis including the recent CORONA VIRUS, but will soon be over.

Historically such epidemic crisis have lasted for a few months and the markets have bounced back after that, the following research states the same

Source: Mint Research

The above table is the testimony of the bouncing back of markets after sharp declines or major crisis.

We have been always talking about following the asset allocation strategy for the last several years. After the 2008 global economic crisis we started our Dynamic Asset Allocation Portfolio under the PMS platform and in 2013 also started offering through the MARS strategy.

The MARS / DAA strategy is a simple asset allocation between Debt and Equity based on the relative market valuation. The strategy changes the Asset Allocation twice in a year in the month of April and October.

We can witness that the while the market has fallen approximately 21% from its peak

Source: Internal

As on 12^th Mar 2020
CYTD is from 31^st Dec 2019
1 YTD is from 31^st Mar 2019
3 YTD is from 31^st Mar 2017
5 YTD is from 31^st Mar 2015
Since Inception Date is 16^th Dec 13

the damage to the MARS/DAA investors is limited to 7.56%, protecting around 14% of downfall for the investor. Even the 3 years and 5 years return in such a low market is positive and outperforming the benchmark by a handsome margin of ~4% CAGR.

Since the inception of MARS (December 2013) our average equity allocation has been 45% but after the current fall the equity allocation has triggered to 85% and we have decided to take an interim call to change the asset allocation to 70% in favour of equity. The other change shall be made in the month of April.

Below is an interesting table showing one year performance of NIFTY 500 TRI when the MARS/DAA equity allocation in the past had gone above 80%

Source : Internal

After February 2014 it is for the first time equity allocation in the dynamic strategy is going above 80%. Experience the power of MARS in the years to come.

Normally 80% and above level of equity allocation comes when the market is available at extremely cheap valuations most of the times preceded by crisis or a pessimistic economic outlook currently in India it is primarily because of the CORONA VIRUS coupled with banking and financial crisis.

Predicting markets is inviting FAILURE, Practicing asset allocation is the key to SUCCESS.

While we are not an expert on CORONA VIRUS to predict its damage but am very clear based on historical and statistical evidence that the crisis will end sooner than we think and the damage would be far lower than what the market has reacted too.

The role of an adviser is extremely critical during such turbulent times because these are times when the customer needs the most hand holding and a true and a caring adviser can only provide.

Many of your investors may be sceptical and sacred - it is the time to give them comfort and ensure that they don't panic and take any wrong decision. As the current loss is notional but on taking a wrong decision (redemption) one is making the loss real in equities.

In the life of an adviser /distributor certain time periods are very crucial to make an indelible mark in the eyes of your investors, and these are such times to make such a mark and win their hearts by demonstrating and coaching that

"How common sense and caring approach will help them create wealth and how prevention of wrong decisions prevents their wealth erosion ?? by providing logical statistical evidences and stories and specifying your role as a behavioural coach.

Let the DIY investors be the ones to pay the price of the DIRECT PLANS.

It is also a great time to get new investors as the new investors will have a very good initial experience.