Investment

Six ways to keep your investment portfolio safe – Mint

Published

4 years ago

February 14, 2021

As 2021 offers hopes of getting back to normal life after the pandemic, this can be a great time to revisit your investment portfolio. Here is a simple six-point checklist:

Do you have an emergency fund to tide through emergency situations? Last year was a good reminder of the need for an emergency fund. Make sure you maintain around 6-12 months of your expense money in a safe debt fund or a fixed deposit.

Is your current asset allocation mix in line with your original plan? Given the recent equity rally, there is a good chance that your equity allocation is much higher than your original planned asset allocation. If your equity allocation exceeds the original asset allocation by more than 5%, it’s a good time to book some profits and realign them back to the original allocation.

Are you adequately diversified across different investment styles in your equity portfolio? The past few years have favoured the quality style and global equities. There is a good chance that you are over-allocated to equity products from these investment styles if you only went by past returns. Diversify equally across five investment styles—quality, value/contrarian, growth at reasonable price, mid & small cap and global equity—to create a well-diversified portfolio with low portfolio overlap.

Does your debt portion carry interest rate risk and credit risk? Duration risk and credit risk are legitimate ways for debt funds to increase their returns. However, they also come with risks. Credit funds have two major risks…

1. Credit risk: The risk of a net asset value (NAV) decline if underlying bonds default or get downgraded.

2. Liquidity risk: Given that lower credit quality papers cannot be sold easily in Indian bond markets, unexpected redemption pressures from investors can lead to closure (remember the Franklin saga?) or sharp NAV falls due to distress sale.

Similarly, funds with a higher duration run interest rate risk—the risk of a higher NAV decline if interest rates move up. Given that most of us view debt funds as an alternative to fixed deposits, the majority of your debt exposure should be in funds with low duration (less than three years to reduce interest rate risk) and high credit quality (>95% AAA and equivalent exposure to avoid credit risk). Even if you want to take interest rate risk or credit risk to improve returns, it is better to limit these risks to less than 30% of your overall debt exposure.

Do you have the right return expectations? Going forward, as interest rates have come down, your return expectations from both debt funds and fixed deposits should be much lower compared to what you enjoyed over the past three-five years. For debt funds, the return expectation should be centered around the current yield to maturity adjusted for expense ratio.

For equity markets, given the high valuations at the current juncture, the next three-five-year returns will be predominantly driven by the underlying earnings growth. While the past five years have had paltry earnings growth, it is reasonable to expect above-average earnings growth over the next five years.

This view is driven by early signs of economic recovery, no visible second wave of the virus, low base, cost-control measures from corporates, low-interest rates, government reforms, etc.

On the volatility side, while it is impossible to forecast, based on past history, a 10-20% intra-year correction is almost a given and should be considered to be normal equity market behaviour if at all it happens. If markets fall more than this, then this can be a good opportunity for increasing your equity allocation.

If markets fall, do you have a ‘what-if-things-go-wrong’ plan? Instead of making investment decisions in the middle of a market fall, a pre-loaded decision plan is a good way to approach the situation. Pre-decide on a portion of your debt allocation to be deployed into equities if in case the market corrects.

The above six checks can ensure that your portfolio is well-prepared for handling whatever 2021 has in store for all of us.

Arun Kumar is head of research, FundsIndia.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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