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smallcases in Focus – January 2024

smallcases in Focus – January 2024
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In the dynamic landscape of financial markets, constructing a robust investment portfolio is crucial for achieving long-term financial goals. One strategy that is gaining prominence is the adoption of a multi-asset portfolio. This approach involves diversifying investments across various asset classes, offering a range of benefits that contribute to reduced volatility, enhanced risk-adjusted returns, downside protection during turbulent times, and access to different market opportunities. 

We shall cover each of the benefits mentioned above in detail. But first, let us take a look at the source from which the inspiration of this write-up originated. Take a careful look at the table below. 

This data is over the last 2 years (31st Dec ‘21 to 31st Jan ‘24). This particular timeline was chosen as we launched our latest products in the ETF category – Horizon smallcases in Dec ‘21. This is a comparison amongst a few of our ETF smallcases with the Equity Large Cap index. And this reveals some interesting observations with the most obvious ones – returns. Our multi-asset (except Top 100 which is an all-equity smallcase) passive ETF portfolios have comfortably beaten the benchmark across all metrics. Now let’s move into the specific benefits of multi-asset portfolios and take cues from this table. 

Reduced Volatility:

One of the primary advantages of a multi-asset portfolio is the potential to reduce overall portfolio volatility. By allocating investments across asset classes that may not move in tandem, the impact of a downturn in one market segment can be offset by positive performance in another. And this is fairly intuitive. Equity markets will not move up for the same reasons as the commodity markets would, right? For investors, this diversification can act as a stabilizing force, especially in times of economic uncertainty or market fluctuations.

Refer to the ‘Standard Deviation’ column in the table above. For the uninitiated, standard deviation is a measure of volatility. All our smallcases have lower volatility as compared to the benchmark.

Enhanced Risk-Adjusted Returns:

Diversification across multiple asset classes enables investors to target enhanced risk-adjusted returns. Different asset classes exhibit varying risk-return profiles. By strategically allocating funds among equities, debt, commodities, and other assets, investors can optimize their portfolio’s performance relative to the level of risk they are willing to bear. This approach is particularly relevant in our markets, where various sectors experience diverse economic cycles.

Refer to the ‘Sharpe’ column in the table above. Sharpe is a statistical ratio that measures the risk-adjusted returns of a portfolio. All our smallcases have better risk-adjusted returns as compared to the benchmark. This means that our portfolios deliver superior returns while undertaking a lower amount of risk.

Downside Protection During Turbulent Times:

India’s financial markets are closely linked to both global and domestic socio-economic challenges. To refresh your memory, the shocks of the Russia-Ukraine were experienced in Indian markets. During periods of economic downturns or market turbulence, a multi-asset portfolio can provide downside protection. Assets like gold and bonds, which may have lower correlations with equities and higher tolerance towards negative news, can act as a hedge, helping to cushion the impact of equity market declines. This protective element becomes valuable for investors as it prevents their capital from getting washed off.

During the period of our study, there were few major downturn phases in the markets, especially the Russia-Ukraine crisis at the start of 2022. Except for the Top 100 (which is an all-equity smallcase) all other ETF-based smallcases have shown strong resilience during these turbulent times. And the sole reason behind this resilience is the presence of different asset classes in one portfolio. 

In the case of extremely bullish phases, an equity smallcase like Top 100 would tend to outperform the multi-asset portfolios given the latter has less allocation to equities.

Exposure to Different Asset Classes:

India offers a diverse set of investment opportunities across asset classes. Beyond traditional equities and bonds, investors can explore alternative investments like real estate, commodities, and structured products. A multi-asset portfolio facilitates access to these different asset classes, enabling investors to capitalize on emerging trends or capitalize on opportunities that may not be readily available in a single-asset strategy.

A well-constructed multi-asset portfolio involves a strategic asset allocation strategy. Investors can adjust their allocations based on market conditions, economic outlook, and their risk tolerance. Having the flexibility to adapt allocations can be a valuable tool for optimizing returns while managing risk.


If you look at it from a bird’s eye view, you would notice that the progression of our multi-asset portfolios has been much smoother as compared to the benchmark or in fact the Top 100 smallcase. They would not rise too much during a bullish phase nor fall too much during a bearish phase, thereby providing stability. This is possible due to the better shock absorption during turbulent market times. 

In the Indian financial landscape, the importance of a multi-asset portfolio cannot be overstated. This approach goes beyond the traditional paradigm of investing solely in equities or debt. As India continues to navigate the complexities of a dynamic global economy, investors can leverage the resilience and adaptability inherent in a multi-asset portfolio. Strategic allocation across equities, bonds, real estate, and alternative investments empowers investors to build portfolios that are not only diversified but also well-positioned to weather-changing market conditions. Embracing a multi-asset approach is not just a prudent investment strategy; it is a dynamic tool for navigating the evolving landscape of the Indian markets. In the end, one always prefers an All Weather portfolio!

Farewell for now, and happy investing! 🎉

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary.

Windmill Capital TeamWindmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.

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smallcases in Focus – January 2024
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