Off-beat investment themes that wealth managers are recommending

Smart investors always seek returns that are more than what the markets offer. While the core portfolios of investors do not see big changes frequently, there are a few tactical calls that work for them.

Every portfolio must have a core and satellite approach. The core funds are your rock solid, steady performers with low to moderate risks. Your satellite portfolio is where your risk-taking schemes come into play. How much of your portfolio lies in the core and satellite baskets, depends on how much risk you are willing to tolerate.

Here are some of the off-beat investment themes that wealth managers are recommending to their clients. 


The yellow metal clocked 29 per cent returns in 2019. No wonder then that it is attracting the attention of investors. Wealth managers recommend taking exposure to gold through gold exchange traded funds (ETF). “Gold as an asset class deserves to be part of the investor’s portfolio as it offers safety and diversification,” says Deepak Chhabria, Founder and Managing Director of Axiom Financial Services.

“Central Banks globally are increasingly looking at gold as an important diversification tool; and gold purchases by Central Banks hit a 50-year high in 2019 (previous record was in 2018),” says Amrita Farmahan, Chief Executive Officer, Ambit Wealth Management. Debt with negative yields will also push investors towards gold as a safe-haven asset alternative to sovereign debt. “Rising geo-political tensions such as the on-going flare-up in the middle-east may be a concern, although things have cooled down there for now. The  US-China trade deal uncertainty, along with Brexit concerns, build a case for allocation to gold,” Farmahan added.

Investments in gold are not risk-free. Reduced uncertainty in the financial markets and easing global geo-political tensions, along with a strong rupee, are key risks you should be aware of.

Ashish Shanker, head investment advisory, Motilal Oswal Private Wealth Management recommends allocating 10 per cent of your portfolio to gold ETF or fund-of-funds that invest in the units of gold ETFs, with a  three-year view.

Small-cap funds

This is a category that saw investors experience considerable pain. According to Value Research, small-cap funds have delivered almost nothing in the last one year, even as large-caps surged. Over the past  three years, they have given 6.44 per cent returns annually. However, many fund managers claim that there are small caps available at good valuations currently. “Loss aversion and recency bias have hit investors who are preferring to stay away. But, valuations are now attractive and quality stocks are available at a good discount,” says Nimish Shah, Head of Investments, BNP Paribas Wealth Management. He recommends up to 20 per cent to small cap funds as it can be a key differentiator for portfolio returns over next 3 to 5 years.

Despite the possibility of earning high returns, risks cannot be ignored. The small cap stocks are hurt when the economy slows down or takes time to recover. The segment is known for high volatility in uncertain times. The key to invest in them is when they have corrected massively consistently and try to invest in them in fallen markets.

Sector funds

In a sideways market some sectors stand out. Shanker recommends that investors with an aggressive risk profile consider investing in the Central Public Sector Enterprises (CPSE) ETF. “Though the attractive valuations and the high dividend yield make it a good opportunistic play, investors should take exposure in a staggered manner given the growth risks this theme comes with,” he adds.

Chhabria recommends investing in banking, financial services & insurance (BFSI) sector equity funds. After the crisis in Infrastructure Leasing & Finance Services (IL&FS), the shares of many housing finance firms and non-banking finance companies (NBFCs) corrected substantially. The banking sector is coming out of a prolonged non-performing assets crisis. This warrants attention to the sector. BFSI funds as a category delivered 12.35 per cent over the last one year. For the risk-averse, exchange-traded funds tracking the banking sector are also on offer.

Farhaman recommends investing in pharma and healthcare funds.  Pharma funds have been laggards for the last five years, giving just 1.75 per cent returns. Experts say that continuous bad news on the business front has resulted in the sector’s valuations being much below its historical average, lending an attractive entry point to investors.

Both pharma and BFSI are seen as return enhancement strategies. However, being sector funds, these schemes lack diversification and come with high risk.

International funds

There are scenarios that require risk mitigation. “Most investor portfolios have a strong home bias. This is against the basic theory of diversification, which is based on the fact that different asset classes perform differently over a period of time,” says Roopali Prabhu, head of investment products, Sanctum Wealth Management. She recommends investing in Indian mutual fund schemes investing in shares listed overseas.

Arvind Bansal, Head of Products & Advisory, Avendus Wealth Management says, “These funds have performed very well in a scenario of depreciating rupee and all investors should look to allocate some portion of their portfolio to reduce currency risk and enhance overall portfolio diversification, with a five to seven years’ time-frame.”

Over last one and three-year periods, these funds as a category have delivered 25.49 per cent and 10.43 per cent returns, respectively. Global macroeconomic concerns, poor economic growth in the geography you invest in and dollar depreciation (against the rupee) can hurt the return potential of these funds.

Credit risk funds

Over the past one year, credit risk funds as well as many other debt schemes invested in bonds that saw credit rating downgrades. Credit risk funds, as a category, have delivered only 0.48 per cent returns in the last one year.

These funds invest in AA-rated bonds and instruments with lower rating, to earn better risk-adjusted returns.

“While the stress in the economy and in the NBFC sector could continue due to lower growth expectations, the challenge lies in selecting the right fund manager and schemes in which the yield to maturity is higher by 150-250 basis points compared to short-term and banking & PSU bond funds,” said Shah.

The risk management is the key to succeeding with this strategy. The larger your credit risk fund is, the more diversified it would typically be. Hence, a credit event here or there wouldn’t bring down the fund’s net asset value substantially. Hexagon Capital Advisors studied one-year and three-year returns of 15 of the largest credit risk funds. The study pointed out that these funds gave higher returns and were less volatile over a three-year period, but gave lower returns with a more turbulent ride over one-year time periods.