I'll Select These TWO Mutual Funds for my Lifetime Investing Portfolio

So I was asked a very interesting question on a recent webinar and the question went like this: If my

portfolio

is made up of only two

funds

and this can be an actively managed

mutual

fund index fund and an ETF for a combination of these, but If you could only have two

funds

, then what would they be? I usually ignore the cons of kharidu type questions on

mutual

funds, but this one was a bit challenging because we have multiple categories, different capitalizations, many investment styles, etc., which obviously complicates things anyway. He had no immediate response for the gentleman.

I asked for some time and for a couple of days I looked at different parameters such as returns, volatility, drawdowns, any existing research I could find etc. and after looking at a few combinations and to my surprise the two funds I I felt more comfortable. Having a two-fund

portfolio

was a momentum fund and secondly, this portfolio would also have a value fund now. You must ask yourself why drive and courage. I could have chosen a Nifty 50 and a midcap Nifty or maybe a small cap fund and the NASDAQ 100 could have been an interesting combination, but no, I chose this strange combination of momentum and value and like, just like Christopher Nolan , I have already given them the prestige, it is time we look at the promise and the spin, let's start very quickly, understand momentum and value 101.

So when Yuvraj Singh clever that six six against England in the T20 World Cup 2007, it could be hearing commentator Ravi Shastri say every chance he got, now his garage must be the favorite here to put sixth in the crowd too, so what? Mr. shastri meant that yuvraj was on fire, meaning that he had the momentum to continue doing what he was doing anyway and he was very likely to get 6-6 in that sense, in more technical terms, momentum is the tendency to exhibit persistence, which in plain language means that investments that have performed relatively well will continue to perform well for some time to come and, likewise, those that have not done well will continue to perform well. poor performance at least in the short term.

For many of us, this concept may seem a bit contradictory because conventionally we are used to believing that all investments should be bought low and sold high. It was particularly difficult for me as I started my education with the value

investing

style which, in cricket terms, is like the Rajasthan Royals, who in 2008 spent less than 60 per cent. of the maximum budget was a team without superstars with players like snotkar tanvir and patan stepping up and yet they shocked the checking world by winning the inaugural season of the Indian Premier League in what can be described as the Royals Moneyball movement that the management there had.

I picked players who were priced significantly lower than actual value and this gap between current price and actual value is what identifies the value factor, so if you look at it broadly, both momentum and value are based on market anomalies that occur when investors exceed or react to information, we know that both strategies do not work all the time and we saw this in a previous video of mine on Factor Investing. Thirdly, the profile of the investor is completely different, since the value investor focuses on research and the long term, while the momentum investor is attentive to short-term price movements, but the characteristic that What really caught my attention is that both factors seem to be negatively correlated, which almost never happens in stocks, so in this exercise, because my entire portfolio is made up of only two funds, I felt this.

A single attribute could help me achieve all three of my portfolio goals, including profitability, asset allocation, and risk management. In fact, let's start with this and examine the results of a study in which I analyzed data from 2006 onwards for a couple of our representative indices. The first index is the Nifty 200 impulse 30 and currently there are quite a few mutual funds that have this option. The second is the Nifty 500 value 50 index which I believe is offered by only one AMC in these last 17 years. Our impulse. The index and value index have performed quite well independently with the momentum strategy leading the race on a lump sum and sip performance basis and also in terms of volatility;

In fact, it's very tempting to conclude that momentum is the best strategy, but there is a good amount of research that says that a combination of momentum and value together can give us even better results and that will be our focus for the rest of this video. Okay, so let's do the easy thing and start with a portfolio of over 50 of our capital. While the value index scores the remaining 50, the result is understandably nothing more than an average and, over a 17-year period, this equates to an effective 16.2 percent, which is much higher than the indices most popular ones like the Nifty 50 and the Mid Cap 150. and even the micro cap 250 index which we recently learned about in a dedicated video, but since we learned even more things on my channel and especially the importance of rebalancing, I applied an annual rebalancing in our 50 50 combination, which gave me a small improvement. of 0.2 percent in returns, in fact, I even attempted a six-month rebalancing which further improved the kagger mix to 16.6 percent, but because the tax rate on short-term capital gains is a slightly higher, I think the subsequent tax returns for all three options are without rebalancing, the annual rebalancing and a six-month rebalancing will come to virtually the same level.

I also analyzed the 50 50 combination on a trailing return basis and there is enough historical evidence here that this strategy can deliver 15 to 16 percent. In fact, each year, the more I look at it, the more convinced I am of my two-sided portfolio because, in addition to solid performance, there is a built-in asset allocation with two investment strategies that are on opposite ends of the spectrum. I mean, look at this data where I have mapped the annual performance of the momentum and value indices and it is not difficult to see that these two are not cut from the same cloth with a performance difference of at least 15 percent in the year 2006 2009 10 11 13 again in 2014 15 16 18 2019 and 2022.

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select

ion and will also help you understand how to collect and analyze clean financial data. Furthermore, the most interesting thing is that Kirubakaran will also guide us through a rules-based investment strategy that will not only help us choose the best stocks but will also clearly tell us when to enter, when to exit and how much to buy.

Check out the course details at fisdom Academy and if you like what you see, sign up using the link in the video description and don't forget to apply the code skn 20 for 20 off course fees, so we've seen something very simple so far, we put 50 on a momentum based fund, we put 50 on a stock, it's fun and we're ready to go, but what was a slight annoyance for me was that we weren't really using the up and down movement. below that cut through both factors, where in some years the momentum works very well while in other years the value is much better, so I tried a couple of my own techniques just to see if complicating things can help me with some additional returns.

Well, the first method I use is a momentum-based shifting method. I'm sure you've never heard of this one before and it's Because I just made up this phrase for the purpose of this video, now the way this forex method works is a lot like how price momentum works, so so if the Nifty 200 momentum index 30 goes up 20 in a three month period, we fairly fairly assume that there is positive momentum in the markets and therefore it makes more sense to invest in the momentum index, for example, in The months of February, March and April 2021 saw a healthy rise in the momentum index, which means that for my strategy I should now put all my eggs in the momentum basket and likewise a drop of 20 in the period from January to March 2020 it would have caused a change to the value strategy which would have remained that way until the next change occurred in April 2021. like I said, it's a bit complicated with periodic changes, but when I did this exercise over a period of 17 years, only four changes needed to be made, which occurred in the months of March 2008, May 2009, March 2020 and again in April 2021.

Now Honestly, I was a little surprised to see only four switches, but then I realized why, because although we always think of the up and down movement in terms of the nifty 50, I was actually using the momentum index to determine when to invest and when to exit. In fact, there was another surprise and this one came based on performance when this momentum-based trading strategy gave me a 17-year CAGR of 22.2 percent, which is a good six percent more than our previous method combination 50 50. I think a little more work. is required here, but I liked what I saw and since I didn't want to disappoint Mr.

Value, I also tried an alternative approach using a switching method based on the p-ratio now, just like we used the p-ratio bands in the Superman video , in this case I defined it. the limit is 18 and 24 to enter and exit momentum and value indices so if the Nifty 50p ratio was less than 18 then I would switch to a momentum strategy and when the ratio crosses 24 then I would go more value oriented , honestly. I had high hopes for this approach, but it didn't work as well as I expected and the 17-year-old Kagger came in at 15.1 percent, which is still pretty respectable.

Anyway, this was a very interesting experiment and just to help, I'm attaching a worksheet. in the description where I mapped the monthly closing values ​​of the nifty 50 and the two indices that we have discussed in this video. If this content has made you a little curious, try the different combinations of momentum and value and feel free. to incorporate more variables like p ratio volume moving averages etc. which can help you present a more superior model, so to summarize and conclude, I think a combination of momentum and value fits perfectly into a two-way portfolio. money. What makes these two factors a perfect match is the high performance in isolation and the fact that they are weakly correlated, which adds an element of asset allocation to my portfolio and thirdly, an investor can improve the portfolio performance without increasing volatility and we discuss some ways to do it in this video If you like this video, please like it and also leave me a comment on how the strategy can be improved further, as always, thanks for your time, please subscribe to my channel, share this. video with your friends and see you in three days until then thanks foreigner