The Art of Rowing and Sailing - How Various Hybrid Funds Navigate Market Cycles with Adaptability?

Imagine this:

You own two boats—a rowboat with sturdy oars and a sailboat captained by an expert sailor.

You head to a lake where the wind blows steadily. Naturally, you’d pick the sailboat to harness the wind’s natural power and glide effortlessly across the water.

Now picture yourself at a serene lake, its surface like glass, with no wind. Here, the rowboat becomes your ideal choice, allowing you to navigate with your own strength while soaking in the tranquil beauty around you.

But what do wind, water, and navigation have to do with investing?

Quite a lot, actually.

When managing investments, fund managers adopt either a rowing mindset or a sailing mindset, akin to navigating those two lakes. These approaches guide their strategies to achieve investment goals, particularly in determining equity levels.

The Sailing Mindset

Sailing takes advantage of favorable conditions, relying more on natural forces than constant intervention. Funds with this philosophy follow a buy-and-hold strategy, aiming for steady growth with minimal adjustments.

The Rowing Mindset

Rowing involves active effort and adaptability, requiring constant engagement to make progress. Similarly, funds with a rowing mindset actively adjust portfolios in response to valuations, macros, sentiments and other factors.

Funds like HDFC Balanced Advantage Fund, HDFC Multi-Asset Fund, and HDFC Asset Allocator Fund of Funds reflect this approach. They use model-driven strategies to manage volatility, dynamically adjust equity allocation and diversify across asset class.

For instance, these funds may increase equity exposure when market valuations are low and reduce it when market valuations are high, aiming to optimize returns.

To illustrate how valuation can influence performance, consider decisions based on Price to Earnings (P/E) (one of the measures used for determining market valuations) ratios. Historical analysis of the Nifty 50 TRI suggests that lower starting P/E levels often correspond to higher medium term forward returns, emphasizing the importance of market valuation in investment decisions.

Disclaimer: The returns mentioned in the above table are historical computation based on Nifty 50 TRI and is an illustration to explain medium term forward returns on the basis of month end starting P/E levels. HDFC Mutual Fund/HDFC AMC is not guaranteeing returns on investments made in this scheme. Past performance may or may not be sustained in the future and is not a guarantee of any future returns.

To conclude

Whether it’s the methodical adjustments of rowing or the steady course of sailing, the ultimate goal remains the same: achieving your financial objectives.

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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.