How multi-asset funds diversify portfolio, smoothen swings

Subscribe to enjoy similar stories. After a blistering rally over the past year, gold and silver prices are beginning to see sharp corrections. Gold ETFs have fallen over 12% since 29 January, and silver ETFs have slumped over 24% as of 4 February.

Experts attribute the correction to profit-booking and expectations of a stronger dollar following the nomination of hawkish Kevin Warsh as the next US Federal Reserve chair. Over last one-year period, gold ETFs have delivered over 80% returns (as of 4 February), while silver ETFs have delivered over 176% returns. After the recent volatility in gold and silver prices, experts now advise caution.

However, investors who are yet to build exposure to precious metals—especially gold, which acts as a hedge for investment portfolios during periods of uncertainty—and are unsure about the appropriate allocation can consider multi-asset funds. These funds are mandated to allocate a minimum of 10% each to at least three asset classes. Such portfolios typically invest across a wide range of assets, including equities, debt, gold, silver, real estate investment trusts (REITs), and international equities.

Multi-asset funds dynamically move between asset classes depending on the fund manager’s view. Here is how these funds tweaked their allocations recently. Recently, some of these funds have tweaked their equity and precious metals allocations based on how these asset classes have performed.

Over the past one year, the category has delivered average returns of 19.36% (as of 3 February). Three- and five-year returns have been 18.26% and 15.63%, respectively. Fund managers say returns from multi-asset funds have been driven by their allocation to precious metals, at a time when domestic