Last updated on August 20th, 2022 at 12:19 pm
Abakkus emerging opportunities fund works on achieving growth in value investing, and it means finding those companies that are the most valuable picks based on their stock price compared to their business earnings. Focus on those companies that show their potential for growth in market share and better sales.
The primary purpose of diversification is to lower the level of risk. So if all your assets are going on the same path, it will mean that returns on your investments will also be harmful as the cycle goes down. But once you combine different types of unrelated asset classes, you will benefit from reduced risk.
The main logic behind diversification
Diversification is spreading your risk across different classes of assets to reduce the overall volatility of your portfolio.
The main logic behind diversification is that it reduces the overall risk in your portfolio by spreading it out over several different asset classes. It does this by lowering unsystematic risk but increasing systematic risk.
Unsystematic risk refers to risks that are specific to individual assets or groups of assets. These include risks like bankruptcy, political instability, and changes in regulation that affect only a subset of companies or sectors. These risks can get eliminated by holding a portfolio consisting entirely of other assets negatively impacted by these events (such as bonds).
Systematic risks equally affect all assets, such as inflation and interest rates. Systematic risk can’t get eliminated by holding only one type of asset; it will similarly affect every investment in your portfolio regardless of whether they’re stocks, bonds, real estate, or commodities.
The process of diversification to follow
Table of Contents
Diversification process with the asset class
The most crucial step is to diversify among the different asset classes. It is essential to combine different types of asset classes. That will help ensure that the overall risk gets spread over the other asset classes and risk for the overall portfolio gets reduced. The first step of diversification starts with finding the different types of asset classes that will make your portfolio to get exposed. https://magazineworld.net/
After determining the type of asset class, you need to decide how much capital you want to allocate to each asset class. That is known as “asset allocation” or “portfolio construction,” It involves deciding on a percentage allocation for each type of investment and then selecting individual securities within each class based on your risk tolerance and investment objectives. abakkus emerging opportunities fund focuses on investing in those companies with significant earnings visibility and better than industry peers. The company follows a very disciplined approach with a 15: ROE, 15: Earnings growth 15: P/E ratio. The company must qualify with atleast two criteria for investing.
Asset allocation should be based not on emotions but reason and logic. You cannot afford to ignore risks, but you also cannot afford to ignore rewards. Allocating assets across different types of investments can help smooth out volatility in your portfolio over time. Even if one sector suffers a setback, others may perform well enough so that overall performance is upbeat despite a setback in one area.
Diversification process within debt base
The process of diversification is straightforward to understand as per your liquidity requirements. The main thing is to divide your portfolio between the liquid and the debt type of funds. Knowing five years and below five years in the debt funds is essential. That will rely on the outlook of the interest rates.
The debt funds have a fixed maturity period, making it easy for investors to plan their investments with some time limit. The risk associated with debt funds is minimal, but they are not as rewarding as equity funds. The returns can vary from 5-8% depending upon the fund manager’s expertise and market conditions.
Debt funds have different categories like short-term income fund, which gives higher returns but has a short tenure; liquid fund, which offers steady returns with little risk but has a long-term assignment and ultra short-term income fund, which gives low returns but has a short tenure of less than one year.
Diversification process within sectors
The diversification process within sectors is an essential aspect of investment management. A lot of people believe that they will be able to get maximum benefits from a single industry. However, this is not true because every sector has its own risk and reward ratio. If you cannot properly understand the risk and reward ratio, you should not invest in any particular industry.
Every sector relies on several features. The financial markets have many consumer goods, capital goods, and information technology groups. There are several banks, and financial stock will get benefitted when the rates come down in the economy. Once the commodity market goes upward, the oil and steel sectors will get benefitted. It would help if you diversified your risk with an actual mix of these sectors in the correct quantity.
Investors need to understand different types of the stock exchange before investing in them. It helps them make better decisions about their investment portfolio and also makes them aware of other market conditions that positively or negatively affect their investments.
Diversification process within themes
The diversification process within themes is essential to note. A theme could be the interest rate, commodities, or even the stock market. In the case of a particular sector like banking, automobile, and real estate get the most benefit when the interest rate is on a downward spiral. If the focus is to diversify with a theme, it is crucial to see that you do not have to get overexposed to the theme.
If you are investing in mutual funds, then it would be better to invest in some other sectors that are unrelated to your primary interest sector. For example, if your primary focus is on banking, investing in different sectors like pharmaceuticals or technology companies would be better.
The process of diversification within themes will help you get more exposure by investing in different industries that are not directly related to each other but still give you good returns on your investment because they have sound fundamentals and prospects for growth in future years ahead of them.
Now that you know about Abakkus Emerging Opportunities Fund for your investment, you can use your knowledge to make a better decision. Ask yourself if the strategies and philosophies of the company sound like they have the potential to help you achieve the goals you want. It might be just the right company for your portfolio if they do.