In this edition of ETMarkets PMS Talk, Rishabh Nahar, Partner and Fund Manager at Qode Advisors, explains how a higher allocation to gold and a dynamically managed derivative hedge helped cushion downside risk and generate alpha.
He also shares insights into the strategy’s asset allocation framework, risk-adjusted return focus, and why an “all weather” approach may be particularly relevant in today’s uncertain macro environment. Edited Excerpts –
Q) QAW delivered nearly 7% return in January 2026 versus a 3% decline in the Nifty50. What led to the outperformance?
A) The outperformance in January was primarily driven by two factors: our higher allocation to gold and the effective deployment of dynamic derivative hedges.
Gold acted as a strong diversifier during the equity drawdown, while our hedging framework protected the equity portion of the portfolio during market weakness.
The combination of asset diversification and tactical hedging enabled QAW to deliver positive returns despite a challenging equity environment.
Q) QAW positions itself as a diversified, low-volatility strategy with a derivative hedge. How is the hedge structured and how dynamic is it across cycles?
A) The derivative hedge is designed to protect the equity component of the portfolio during medium- to long-term downtrends. It is not static – it adjusts dynamically based on market direction and trend signals.
When markets exhibit sustained weakness, hedges are activated to reduce downside risk. Conversely, during strong uptrends, hedges are scaled down or removed to avoid unnecessary cost drag.
This dynamic structure allows us to balance protection and participation efficiently across market cycles.
Q) How do you determine asset allocation between equity, gold, and cash?
A) The asset allocation framework is the result of rigorous testing and correlation analysis across asset classes. Gold and equities historically exhibit complementary behavior, especially during periods of stress.
Within equities, we blend momentum and low-volatility strategies, which themselves tend to complement each other across market regimes.
While the core allocation is strategic and not frequently altered, we conduct regular portfolio reviews and may make measured adjustments based on prevailing market conditions and macro positioning.
Q) Since inception in November 2024, what has been the biggest contributor to alpha – asset allocation, stock selection, or derivatives?
A) The largest contributor to alpha so far has been asset allocation – particularly our higher allocation to gold – along with the timely and effective execution of our derivative hedges.
The interplay between diversified asset allocation and well-calibrated hedging has been instrumental in generating excess returns.
Q) The Sharpe ratio stands at 1.59 versus 0.03 for the benchmark. How sustainable is this risk-adjusted outperformance?
A) The portfolio is specifically designed to optimize risk-adjusted returns rather than maximize raw returns. A higher Sharpe ratio is a structural objective of the strategy.
By combining uncorrelated assets and disciplined hedging, we aim to deliver stable and consistent performance across market cycles. While short-term metrics can fluctuate, the design philosophy of the portfolio supports sustainable risk-adjusted outperformance over the long term.
Q) With standard deviation slightly higher than the Nifty (13.42% vs 12.95%), how do you define “low volatility” in this context?
A) While our standard deviation has been comparable to the Nifty over the past year and since inception, an also meaningful measure is drawdown.
QAW has experienced significantly lower maximum drawdowns compared to the Nifty 50 during the same period. Over longer time frames, we expect volatility to moderate further.
The strategy’s objective is not only to minimize short-term fluctuations, but also to reduce downside severity and improve return consistency over time.
Q) How actively do you rebalance between equity and gold based on macro signals?
A) The portfolio undergoes a structured rebalance annually to maintain strategic alignment. However, we continuously monitor macroeconomic signals and market conditions.
If warranted, we may make measured tactical adjustments during the year, though changes are incremental rather than aggressive. The framework prioritizes stability while remaining responsive to evolving macro trends.
Q) In the current macro environment, what risks justify an “all weather” approach?
A) The current environment is characterized by geopolitical uncertainty, inflationary pressures, shifting interest rate cycles, and periodic equity volatility.
An “All Weather” approach is designed to navigate such uncertainties without requiring precise market timing.
While the strategy may not capture the full upside during strong equity bull runs due to diversification into gold and hedges, it aims to deliver smoother and more consistent returns across cycles – which is particularly valuable in uncertain macro conditions.
Q) Who is the ideal investor for QAW?
A) QAW is suitable for investors seeking stability, consistency, and lower drawdowns in their portfolios.
It can serve equity-heavy HNIs looking to smooth overall portfolio volatility, as well as conservative investors who want equity participation with downside protection.
In fact, most diversified portfolios can benefit from some allocation to strategies like QAW, given its focus on uncorrelated return streams and disciplined risk management.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Source link
#ETMarkets #PMS #Talk #Gold #allocation #dynamic #hedging #helped #QAW #beat #Nifty #January #selloff #Rishabh #Nahar #Qode #Advisors
