Amateur - Looking for feedback on diversifying (or over diversifying?) my long-term portfolio and get some insights/advice from veterans

Personal finance
1

About me

I’m in my early 20s, and this is the first time I’m building a proper long-term portfolio. My investment horizon is 20+ years, and I have a pretty high risk appetite, so I’m okay with volatility as long as the overall portfolio makes sense.

Here’s what I’m doing and planning:

  • HDFC Flexi Cap – 27%
    Rationale: Core Indian market allocation.
  • Motilal Oswal BSE Enhanced Value Index – 13.5%
    Thesis: Long-term exposure to the value factor.
  • ICICI Prudential Nasdaq 100 – 16.2%
    Thesis: International diversification and exposure to leading US tech companies.
  • Mirae Asset Small Cap – 16.2%
    Thesis: Higher long-term growth potential.
  • ICICI Prudential Pharma, Healthcare & Diagnostics – 10.8%
    Thesis: I see healthcare as an evergreen sector with strong long-term tailwinds.
  • Gold/Silver ETFs – 16.2% (planned)
    Rationale: Planning to split this allocation between Gold and Silver for diversification and as a hedge.

Now here’s where I’m confused.

My original plan was to keep the Pharma fund and add one more thematic allocation , probably an Automobile fund. The reason isn’t that I want to keep Auto forever. My thought process was to always have one tactical sector allocation that I can rotate over time if another sector has a stronger long-term story. The rest of the portfolio would ideally stay unchanged.

But the more I think about it, the more I’m worried about covering the whole market ie mapping NSE 500 eventually.

So I’d love to hear your thoughts:

  • Does this overall framework make sense?
  • Would you have one evergreen sector (like pharma) and one rotating tactical sector, or would you avoid sector funds altogether?
  • Is my portfolio already good or overdiversified, and should I churn funds?

Would genuinely appreciate any feedback. Since this is my first serious attempt at building a long-term portfolio, I’d rather get the framework right now than keep tweaking it every year.

2

Midcap has outperformed small and large cap in the last 7 years. Even after the recent corrections, it has outperformed. :chart_with_upwards_trend:

Give midcaps an allocation in between flexi and smallcap. :heavy_division_sign:
Check its holdings against your flexi fund’s holdings so that there isn’t much overlap. :scroll:

There is no point in holding silver long term as gold has historically delivered more absolute returns with lower volatility. :coin:

Sectoral plays are a landmine, I would avoid. :boom:

1 Like
3

Adding over @pavinjoseph inputs , just one more suggestion

You have one value index fund.
For diversification you can have alpha or momentum index fund (instead of current thematic fund). Remember factor index funds represents styles . Although we expect factor fund will give better than market returns in long run, its possible that one style may go out of favor of many years.
Better to counterbalance with apposite style factor fund to ensure low co-relation .

1 Like
4

Thanks for your response and guidance. @RajendraPatil @pavinjoseph

Had a few questions,

Give midcaps an allocation in between flexi and smallcap. :heavy_division_sign:

I am just scared that if I add a mid-cap fund, then I will basically be following the NSE 500, and in such a scenario, a Nifty 500 index fund seems a better choice because, per my understanding, the returns will more or less coincide + I save a lot on expense ratio

Sectoral plays are a landmine, I would avoid. :boom:

For sectoral funds, I added pharma because I saw that the dropdown in pharma is quite negligible as compared to the broader market, so it provides a hedge. Please let me know if that makes sense.

For thematic funds, I feel I am being greedy, but per my analysis, thematic funds, if played smartly, can make a hell of a lot of difference with limited downside. In past defense, PSU has shown that I feel automobiles are going to have a lot of tailwinds, similarly (more so if E20 fuel is scrapped out next year).

There is no point in holding silver long term as gold has historically delivered more absolute returns with lower volatility. :coin:

Lastly, for gold/silver, I am grateful for your advice. BTW, what should be a good allocation % for it? is 10% fair? or a bit more?

And gold I was thinking of putting a monthly ETF SIP on Zerodha as it saves me some expense ratio but not sure if it’s worth the hassle as compared to normal FoFs

5

Better to counterbalance with apposite style factor fund to ensure low co-relation .

Hmmm, that makes a lot of sense. Just as mentioned earlier, I feel scared that I might end up doing nse 500 hugging; in such a scenario, my efforts are a waste, right?

Can you please recommend some good places to start reading about momentum funds? I have no idea about them atm. I mostly wish to figure out if I should go form some index funds like Momentum 250 Quality 50 or a fund house’s active offering

Thanks again, @pavinjoseph @RajendraPatil

6

@noob_one this is not really diversifying - sectoral need to be avoid completely

my mutual fund portfolio is

quant Multi asset fund
Whiteoak MIDCAP fund
INvesco Smallcap fund

CAGR expected 20% plus in long term

Thats enough - its really easy to do SIP and to manage - 100% pension secured

1 Like
7

I thought like this too but this is actually not the case yet in the Indian market.
Some active funds have consistently outperformed their benchmark over the last 20 years probably due to inefficiencies in the Indian market. If you create a portfolio out of these funds you will hopefully outperform the market and its respective indices. :face_holding_back_tears:

The alpha is lowest in large cap Nifty 50 index. Here, the inefficiencies are the least and so managed funds rarely outperform passive funds. Save your money, choose a passive fund or better a managed Flexi-cap fund without much overlap with your mid/smallcap funds’ holdings. :chart_with_upwards_trend:

Your hedge should consist of a different asset class, not different sectors of equity. :coin:
Gold and debt are the most popular hedges against equity drawdowns. :bank:

The most conservative allocation for the most popular asset classes is 1/3 each of equity (mix of sectors), debt (mix of duration), and gold (mix of vehicles). :safety_vest:

For long term growth (provided you have a separate liquid emergency fund) you can remove the debt component, increase allocation to equity for greater returns (at the risk of greater drawdowns) and choose a 60:40 or 70:30 allocation favoring equities. :scroll:

1 Like
8

Some practical examples against choosing sectors manually:

  • The Indian IT sector a few years ago (everyone needs these to work remotely right!?) v. now.
  • Consumer goods (everyone needs these to survive right!?) currently in China.

Both are casualties of AI. :robot:

The CSI 300 Index benchmark has seen its consumer sector stocks fall by about 20 per cent.

Source.

9

this is very profound question you have asked and calls for slightly detailed reply.

  1. When we use non-correlated assets and maintain target allocation we are for sure get much lower volatility (and possibility of hight gains). In this care gold has low co-relation with equity. Within equity value, momentum tend to have low co-relation over long period of time For more information please google modern portfolio theory and efficient frontier
    Basically if you believe enhanced value and momentum gives better than NSE 500, the periodic rebalancing withing themselves and gold will ensure you have slightly better than NSE 500 returns and much more reduction in volatility

  2. The risk appetite changes with respect to age as well as value of portfolio at stake. When we have 1000 rupees invested 30% drop could mean 700 rupees and we will be glad as, we can invest lumpsum. But when we have 10 Cr, 30% drop means portfolio reduced to 7 Cr. It is difficult to stomach notional loss of 3Cr (i.e. 300 lakh rupees)
    so we should construct the portfolio with low /no co-relation components (and rebalance periodically to target allocation) to reduce volatility in portfolio…

In fact this is the reason why asset allocation and rebalancing is called as only free lunch in stock market.

1 Like
10

hey, what’s your rationale for Whiteoak Midcap fund? I have finally made up my mind to invest in a mid cap fund after seeing the numbers but i am confused between Nippon, Invesco and Whiteoak!

11

Thanks for educating me on this!

12

Thanks, sir. I am 22, so I have a long way to go. Hopefully I will help someone the way you and others helped me!

13

@noob_one I like this fund in Midcap Segment - because downside protection is super good in this fund , they will allocate to REIT also and debt portion also included , and this fund is pick fundamental strong and value basic , in case if you look the motilal oswal midcap fund will choose momentum based stock , motilal is high risk fund , white oak can give stable ,limited downsiderisk , stable compoundding can be expected

2 Likes