Investors take to ETF baskets for passive diversification

Investors looking to build a core portfolio using passive products across different asset classes at a low cost have started buying ETF baskets. Such products can be bought online with a single click and the portfolio could be actively managed based on the brokerage house view on the asset class.

“Many investors want a combination of two to three asset classes that can be bought easily through a simple click and they prefer doing long term SIPs to create wealth,” said Deepak Jasani, head of retail research at HDFC Securities.

Financial planners point out that ETFs are simple products where the expense ratio is just a fraction of actively traded counterparts and they do not have any fund manager bias.

HDFC Securities offers seven ETF-only baskets to its investors with the asset allocation portfolio baskets attracting many savers. The Smart Wealth Moderate Portfolio has a 40% allocation to Edelweiss Bharat Bond-April 2025 ETF, 10% each to Nippon India Gold BeES ETF and Nippon India Junior Nifty BeES ETF with the remaining 40% in Nippon India Nifty 50 BeES ETF.

On the other hand, the Smart Beta ETF basket, which is an equity-only portfolio and is a combination of two factors namely low volatility and value, has 40% allocation to ICICI Prudential NV20 ETF and 60% ICICI Prudential Nifty 100 Low Volatility 30 ETF.

Brokerages like ICICI Securities also offer several ETF baskets. Its Largecap Beater, which aims to give higher returns than large-cap funds, has Nifty 50 ETF, Nifty Next 50 ETF, Nifty Midcap 150 ETF, Gold ETF with weights ranging between 10% and 40% in the portfolio.

Prabhudas Lilladher offers a dynamic multi-asset ETF portfolio through the PMS route for rich investors using a combination of international equities, debt split across liquid, corporate bond and gilt funds, and with weights in each product dynamically managed using an in-house model.

“Our multi-asset ETF strategy is dynamic and uses a tactical asset allocation strategy that uses a combination of our proprietary quant models and indicators,” said Siddharth Vora, head-quant investment strategies & fund manager-PMS, at Prabhudas Lilladher. Vora said the model enables switching between domestic equities, international equities, gold, corporate bonds, gilt and liquid funds to generate a return. Currently the portfolio has 54.7 % domestic equity, 14.4% international equity, 11.2% gold and 18.5 % fixed income.

Asset allocation alone explains 92% of returns in the portfolio with 8% coming from other factors like security selection and market timing. They believe using a combination of assets like equity gold and fixed income can help reduce volatility and maximise returns.

Wealth managers believe as liquidity in ETFs increases and they get more popular, the number of offerings is likely to increase.

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