ICICI Prudential MF's S Naren used a striking historical example to illustrate the risks of individual stock selection at the ET Wealth Expo in Mumbai. He revealed that only six companies from the 1990 Sensex remain in the benchmark today, with the remaining 24 constituents no longer part of the index. The 1990 Sensex included companies such as ACC, Kirloskar, Cummins, Mukand, Glaxo, Mahindra & Mahindra, Voltas, Indian Hotels, Premier Automobiles, Futura Polyester, Philips, Tata Power, Hindustan Motors and Zenith Birla. Naren emphasized that this demonstrates why investors need to distinguish between asset allocation and stock selection, explaining that allocating money to an asset class after a correction is fundamentally different from repeatedly buying individual stocks in the hope of recovery.
ICICI Prudential MF's S Naren cautioned investors against chasing assets after spectacular rallies, coining the term 'anti-asset allocation' at the ET Wealth Expo in Mumbai. According to reports from The Economic Times, Naren explained that genuine asset allocation means buying after a correction in an asset class and purchasing unpopular asset classes, which requires patience and conviction. He warned that investors often mistake strong past performance for assurance of future returns, making it easy to buy popular investments while putting money into assets that have fallen out of favour is considerably harder. Speaking at the ET Wealth Expo, Naren emphasized that buying an asset class after a sharp rally is a form of 'anti-asset allocation', contrasting this with genuine asset allocation that involves investing in asset classes that have corrected or fallen out of favour. His argument is not that individual stocks cannot deliver strong returns, but rather investors should not assume that a beaten-down stock will eventually regain its former value.
The warning became particularly relevant when silver delivered a 216% return, making it increasingly difficult for investors to resist joining the rally. As reported by The Economic Times, Naren had repeatedly cautioned against treating silver as an investment that could only move higher, comparing it to a small-cap stock with similar risks. According to Naren, "Once silver gave a return of 216%, it was impossible for someone to say, 'I won't buy silver.'" Investors found it difficult to stay away from silver after its steep rise, justifying their purchases by citing its growing industrial use, particularly in artificial intelligence, and concerns over supply shortages. However, silver subsequently corrected 27%, falling much like a small-cap stock as Naren had warned, demonstrating the risks of chasing performance after a substantial rally. Naren identified the NASDAQ and the US dollar as prominent examples of anti-asset allocation, noting the US dollar's sustained appreciation against other currencies, including the Japanese yen, which moved from 80 to 157.
Market veteran S Naren highlighted that investors seeking international diversification should consider international debt, which has underperformed over the past five years, instead of following the growing enthusiasm for US stocks. Speaking at the ET Wealth Expo, Naren pointed to the surge in investor interest in gold and silver ETFs in January as an example of this trend, noting that inflows into the two categories during the month even surpassed those into equity mutual funds, an unusual development. He emphasized that investors should distinguish between diversification and asset allocation, explaining that simply adding international equities to a portfolio because they have performed well does not necessarily amount to genuine diversification or sound asset allocation. Gold also featured in his list, though with an important qualification - while he considers gold part of the anti-asset allocation theme after its substantial rally, he still sees a case for holding a small allocation due to the shift in central banks' attitudes towards gold following the impounding of Russia's reserves.
Despite his warnings about chasing returns, Naren does not expect gold to revert to earlier relative valuation levels due to the fundamental shift in central bank strategies. According to The Economic Times, his broader message emphasizes the difference between allocating money to an asset and chasing its returns. He believes an asset can have a strong long-term investment case without necessarily being attractive at every price, and when an investment becomes so popular that investors find it difficult to stay away, that may be precisely when they need to examine their allocation decisions more carefully. Naren also highlighted the behavior of mutual fund investors in India, noting that when the Nifty became cheaper relative to its historical averages, largecap funds witnessed outflows in July and August, with flows turning slightly positive in September before emerging again as valuations remained attractive. He was careful to distinguish between the broader asset class and individual stocks within it, noting that there could still be midcap and smallcap companies that perform well, but that does not automatically make the entire segment attractive from an asset allocation perspective.
