<p>At any point in time, there are segments that are favoured by the markets and those that are shunned. A host of micro and macroeconomic, industry and company-level factors, apart from government policies tend to dictate sectors that would do well. Global factors, geopolitics, trade tariffs and FPI flows also tend to dictate index movements.</p>.<p>Markets now have to contend with positive and negative factors in the current times. Penal trade tariffs levied by the US, geopolitical tensions, and curbs on H-1B visas are adverse factors. Income tax reductions, GST reforms, government’s renewed spending on infrastructure, and low inflation are beneficial factors.</p>.<p>Different sectors tend to do well at various time periods based on a host of factors. Investing in sectors or themes most suited for a particular macro environment can be rewarding. More so, when done via various domestic ETFs (exchange traded funds), which offer exposure to different segments (market cap-based, smart beta, thematic, etc.) of the market at low costs, with adequate liquidity while being traded in the exchanges.</p>.<p>For retail investors, making the connect between macro factors and market movements, greed and fear, and rebalancing their portfolio along with tax optimisation are challenges.</p>.<p>Therefore, investing in a fund that invests in a combination of passive ETFs and juggles their weightage based on market/macro conditions may ensure optimal risk-adjusted performance for retail investors.</p>.<p class="CrossHead">Investor challenges</p>.<p>Consumer durables was the top performing sector in 2015, 2017 and 2019. Healthcare was the topper in 2020 and 2024. Financial services is shining thus far in 2025. Auto was the leader in 2023, while IT made it to the top in 2018. Power was the best returning sector in 2021 and 2022.</p>.<p>The point is that sector performances vary and winners tend to differ each year. A confluence of factors – inflation, interest rates, corporate earnings, government policies, market liquidity, global factors and geopolitical tensions – is at play.</p>.<p>Making the connect between these factors with individual segment to spot winners is extremely challenging for retail investors due to resource (skillset, knowledge, etc.) and time constraints.</p>.<p>Controlling the behavioural aspects – greed and fear – is a major challenge while making investment decisions.</p>.<p>From April 2014 to April 2015, the inflows into the pharma industry increased by a robust 57%. It was an overheated segment at that time and greed ruled the roost. In the next three years (April 2015-April 2018), the Nifty Healthcare index delivered -10.75% CAGR, that is compounded negative returns.</p>.<p>In 2013, India faced a weak macro environment with high fiscal and current account deficits, record inflation, depreciating currency, heavy corporate leverage and the like. Fear was excessive among investors. Most of them missed the stellar rally in the FMCG sector from early 2013 to late 2015.</p>.<p>Finally, there is the aspect of being able to device an exit strategy and rebalance your portfolio depending on the market situation. This process, again, is quite challenging for retail investors to execute.</p>.<p class="CrossHead">Taking the fund route</p>.<p>Investing in a specific theme and/or sector ETFs that track various related indices is the simplest way for investors to gain from market movements. It is cost-efficient due to the low expense ratio of these ETFs. Also, since units are actively traded in the BSE and NSE, buying and selling trades are easy with reasonable liquidity.</p>.<p>A mix of these ETFs can create a diversified portfolio for investors over the long term.</p>.<p>However, there is a challenge in this process, too. How do investors choose which ETFs to invest in and also the suitable weightage, apart from deciding the rebalancing strategy? That’s precisely the problem a fund that invests in these ETFs seeks to solve.</p>.<p>A fund of funds that invests only in ETFs would be a passive strategy solution.</p>.<p>Based on macro trends that are monitored closely along with internal models, the fund manager would identify suitable passive ETFs that track specific sectors or themes. Then suitable weightages are assigned to the underlying ETFs by the fund manager.</p>.<p>With periodic monitoring, the portfolio is rebalanced as and when required.</p>.<p>(The writer is with ICICI Prudential AMC)</p>
<p>At any point in time, there are segments that are favoured by the markets and those that are shunned. A host of micro and macroeconomic, industry and company-level factors, apart from government policies tend to dictate sectors that would do well. Global factors, geopolitics, trade tariffs and FPI flows also tend to dictate index movements.</p>.<p>Markets now have to contend with positive and negative factors in the current times. Penal trade tariffs levied by the US, geopolitical tensions, and curbs on H-1B visas are adverse factors. Income tax reductions, GST reforms, government’s renewed spending on infrastructure, and low inflation are beneficial factors.</p>.<p>Different sectors tend to do well at various time periods based on a host of factors. Investing in sectors or themes most suited for a particular macro environment can be rewarding. More so, when done via various domestic ETFs (exchange traded funds), which offer exposure to different segments (market cap-based, smart beta, thematic, etc.) of the market at low costs, with adequate liquidity while being traded in the exchanges.</p>.<p>For retail investors, making the connect between macro factors and market movements, greed and fear, and rebalancing their portfolio along with tax optimisation are challenges.</p>.<p>Therefore, investing in a fund that invests in a combination of passive ETFs and juggles their weightage based on market/macro conditions may ensure optimal risk-adjusted performance for retail investors.</p>.<p class="CrossHead">Investor challenges</p>.<p>Consumer durables was the top performing sector in 2015, 2017 and 2019. Healthcare was the topper in 2020 and 2024. Financial services is shining thus far in 2025. Auto was the leader in 2023, while IT made it to the top in 2018. Power was the best returning sector in 2021 and 2022.</p>.<p>The point is that sector performances vary and winners tend to differ each year. A confluence of factors – inflation, interest rates, corporate earnings, government policies, market liquidity, global factors and geopolitical tensions – is at play.</p>.<p>Making the connect between these factors with individual segment to spot winners is extremely challenging for retail investors due to resource (skillset, knowledge, etc.) and time constraints.</p>.<p>Controlling the behavioural aspects – greed and fear – is a major challenge while making investment decisions.</p>.<p>From April 2014 to April 2015, the inflows into the pharma industry increased by a robust 57%. It was an overheated segment at that time and greed ruled the roost. In the next three years (April 2015-April 2018), the Nifty Healthcare index delivered -10.75% CAGR, that is compounded negative returns.</p>.<p>In 2013, India faced a weak macro environment with high fiscal and current account deficits, record inflation, depreciating currency, heavy corporate leverage and the like. Fear was excessive among investors. Most of them missed the stellar rally in the FMCG sector from early 2013 to late 2015.</p>.<p>Finally, there is the aspect of being able to device an exit strategy and rebalance your portfolio depending on the market situation. This process, again, is quite challenging for retail investors to execute.</p>.<p class="CrossHead">Taking the fund route</p>.<p>Investing in a specific theme and/or sector ETFs that track various related indices is the simplest way for investors to gain from market movements. It is cost-efficient due to the low expense ratio of these ETFs. Also, since units are actively traded in the BSE and NSE, buying and selling trades are easy with reasonable liquidity.</p>.<p>A mix of these ETFs can create a diversified portfolio for investors over the long term.</p>.<p>However, there is a challenge in this process, too. How do investors choose which ETFs to invest in and also the suitable weightage, apart from deciding the rebalancing strategy? That’s precisely the problem a fund that invests in these ETFs seeks to solve.</p>.<p>A fund of funds that invests only in ETFs would be a passive strategy solution.</p>.<p>Based on macro trends that are monitored closely along with internal models, the fund manager would identify suitable passive ETFs that track specific sectors or themes. Then suitable weightages are assigned to the underlying ETFs by the fund manager.</p>.<p>With periodic monitoring, the portfolio is rebalanced as and when required.</p>.<p>(The writer is with ICICI Prudential AMC)</p>