The Perfect Portfolio : Summary

Trading Markets have been swamped by a variety of financial assets and subsequently, investment world has witnessed an exponential rise in the number of funds managing these diverse assets. Gone are the days when the investor had to allocate capital between just two segments, bond funds and equity funds. In the current scenario, the options have exploded. The number of Gold funds, sector specific funds, emerging market funds, country specific funds etc have been growing rapidly but the returns across all these investment vehicles have been completely random. Who performs on a consistent basis ? is a million dollar question . In such a situation, what should be investor doing?

This book makes a strong case for a portfolio that the author calls a “Perfect Portfolio”. This portfolio, as per the author, should comprise two Segments. First is a CORE segment which includes Cash, Bond, Domestic Equity and International Equity assets. Second is the Target Market Segment which should have 5 asset classes, Gold, Energy, Agriculture, Real Estate, and Emerging Markets. There is a strong case throughout the book that for each of the two segments, ETFs are the best vehicles as they are

• Easy to Understand

• Simple to Implement

• Be Easy to Monitor and Change

• Be Responsive to Changing Market Conditions

What are the options for an Indian investor ?

In the case of an Indian investor, one can think of building a CORE portfolio using LIQUID ETF like Benchmark Liquid BeES, an equity exposure ETF using Nifty BeES & Junior BeES and International ETFs like Hangseng BeES . Looking at the NIFTY100 returns over the last 5 years, isn’t it hassle free to take a TOTAL MARKET View , rather than spend enormous time in understanding specific stocks. Who in the world knows why a specific stocks moves in the way it moves. Basically if you invest in TOTAL MARKET VIEW, you are using LAW OF LARGE Numbers to your advantage. Look at the NIFTY 100 returns and it appears that TOTAL MARKET VIEW is a safe bet. 

If you had invested at the start of the calendar year and redeemed at the end of the calendar year, the NIFTY100 returns are as follows :

The Target Market Segment can be built using Commodity ETFs like Gold ETF . The other asset classes mentioned in the Target Market Segment are not available in the domestic markets for the Indian Investor. But nothing stops him from investing in  ETFs in the international markets and create the perfect portfolio.

The following stats from goldprice.org shows the importance of having an alternate asset in the portfolio where there is an obvious benefit of diversification.

Indian investors reaching out for an energy ETF traded in the foreign markets for their portfolio composition is doubtful. If and when such ETFs trade in Indian markets, then I am certain that retail investors will be more receptive to such investments .

This book has one big flaw though. It talks about market timing, trading signals and trading strategies associated with 9 asset classes. Now that is quite a stretch. You can’t expect a retail investor to keep automated trading rules, conducting TA, and take active buy and call decisions and that too with instruments like ETFs which are basically ZEN instruments, meaning, BUY and be at peace with the volatility associated with them. Holding such ZEN instruments and actively trading them as a side activity is a tough thing to expect from retail investors.

  Takeaway :

The broad message of this book is extremely clear. Diversified ETFs with broad asset classes is the PERFECT PORTFOLIO for a retail investor.