Asset Allocation – Solidarity

Why are Gold prices rising

We are an Equity fund house. We will not be buying Gold in portfolios. However, I would like to share my understanding of why Gold prices are doing well and why they should continue to do well.

Gold has no attraction to fundamental investors as it generates no cash flow. However, Gold has served as a store of value. Here is the empirical evidence.

Gold

Enclosed note contains our perspective on Gold

Why we are reluctant to take cash calls at present

We have had a few conversations with partners on why we are reluctant to take a 20% cash call at present despite the current uncertainty to re-enter when prices are more favourable. I thought it may be appropriate to share our thought process with all our partners.

I want to separate the question into 2 parts

a) The cash call on “Asset Allocation” – which is for partners to make

b) The cash call on “portfolio construct”- which is for Solidarity to make

Observations On Asset Allocation

Enclosed note contains our perspectives on broader asset allocation.

Our perspective on the Bharat Bond ETF

We see two roles for “Debt” in any portfolio

Yield – if the regular income is required to fund expenses.

Optionality – if a debt instrument is liquid, it not only provides you a coupon, but also serves as a free Call Option to deploy additional capital in Equity markets/other Asset Classes if a very attractive opportunity came by. Most investors rue having no Cash to deploy during a crisis when Equities are available at very attractive valuations. Having access to Cash (ability to sell the Bond) + courage (ability to redeploy into Equities) are invaluable during a crisis.

Invest in some Gold in your portfolios

The starting point for Investors must always be Asset Allocation. In some earlier letters, we have written to you recommending you should hold some Gold/Gold Equivalents in one’s portfolio – as Insurance to guard against the “unknown unknowns” of excessive money printing and even as diversification into another Asset Class that is not correlated with Equities.

Are you aware of the risk in your Debt Investments?

The money one does not want to risk Capital loss on is typically invested in Debt instruments. However, Debt Mutual funds have schemes that invest across varied risk spectrums.

“I can think. I can wait. I can fast”
Siddhartha, Herman Hesse

The strategic importance of holding cash and equivalents

Solidarity is a multi-family investment office. We are often asked (by clients with high ability and willingness to take risk) why we recommend they should hold at least 10 -15% of their Investible Assets in Bonds/Liquid funds and not be fully invested in Equities; especially if clients don’t need the capital for at least 3 years.

Is This 2008 Once Again?

Global markets have started the year with perhaps the worst performance in over two decades. The sell-off has prompted commentary in the media “hinting of parallels with the 2008 like crisis”