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What Will The Contrarian In You Do When Long Term & Short Term Investment Returns Data Diverge?

Now that FY 2022 – 2023 is comfortable behind us, here’s an evaluation on how things went for various investments (or asset classes if your prefer) last FY.

No 1 position goes to GOLD. Yellow metal delivered nearly 14.5% return if you bought it through very liquid fund of fund (FOF) route. Holdings via SGB route may have done better considering there is an interest component also, but for now we will consider returns from FOF as sacrosanct.

 

Next best performer:  The much bashed cash equivalent, basis overnight mutual funds yielded around 5.35%. Even though positive, there’s a huge gap from returns delivered by gold, the best performing investment.

 

Long term bonds, basis 10 year constant maturity Gilt Funds yielded 3.45%.

 

Nothing great, but lot better than listed equity investments – which yielded just 0.09%, going by Nifty 50 index mutual funds.

 

If you want to be a contrarian, you know where your money should be going for the current FY if you are going to do some sort of annual rebalancing. But then, I doubt many would be having reasonable allocation to investment gold which can be sold and rebalanced into equities or maybe long government bonds. And good luck trying to sell gold jewellery to buy stocks. Still, the option remains. Point to note -  a case for high allocation to gold and it’s benefits has been demonstrated in “Permanent Portfolio” popularized by Harry Browne. Someday, will pen a blog on long term performance of permanent portfolio in Indian context.

 

Mind you, all the returns quoted above, and the one’s below are all delivered by readily available mutual funds (regular, growth plans)***. These are not benchmark returns but actual returns which an investor would have realized after cost / tracking error et al. Provided you held on to them for the said period.

 

That said, you are a long termer and don’t take one year figures seriously. 

 

Lets see what 5 year period holds:

Point to point basis, i.e for the period 1 April 2018 – 31 March 2023, performance is:

-       Gold:                                       13.07%

-       Cash Equivalent:                     4.54%

-       Long Term Bonds:                   7.87%

-       Equity:                                     11.77%

 

While gold still retains the top spot, equity, the worst performing investment for FY 2022 – 2023 does not seem to be very far behind. Cash, as expected has been relegated to the last.

 

Let’s move the needle a bit more. What does 10 year horizon hold?

 

-       Gold:                                       5.87%

-       Cash Equivalent:                     5.97% 

-       Long Term Bonds:                    8.69%

-       Equity:                                     12.32%

 

Aww. It seems tables have totally turned. The best performer (Gold) for the latest FY is the worst performer of the decade. Equity bags the top spot. Long term bonds have also done pretty good. Of course, one has to hold on to the investments for full 10 years to realize these returns. Not so easy to accomplish!!!

 

What will the contrarian in you do now? Go by the long term data or the latest FY one?

 

Each to their own!!! Don’t take this note as any sort of investment advise.


*** Gold returns are average of Quantum, Kotak, and Nippon India Gold funds.

 Cash equivalent returns are average of HDFC, SBI and UTI overnight funds.

 Long bond returns are average of ICICI Pru, Bandhan (erstwhile IDFC) and SBI 10 Year constant maturity GILT funds

 Equity returns are average of ICICI Pru, SBI and HDFC Nifty 50 Index funds

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