Investors looking for the next source of alpha should resist the temptation to chase markets, sectors, or asset classes that have already generated strong returns and instead focus on areas currently out of favour, said Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund, at the ET Alpha Wealth Summit on Thursday.
Speaking at the summit, Parekh cautioned that one of the most common investing mistakes is assuming that recent winners will continue to outperform. According to him, future alpha is often found where returns have been scarce, investor ownership is low, and market interest remains limited.
"If you want to search for future alpha, search for where alpha is not there today," was the central theme of his remarks as he urged investors to think beyond prevailing market narratives.
Parekh highlighted how investor preferences tend to shift with recent performance. A few years ago, many investors believed Indian equities were the only place where meaningful alpha could be generated. Today, after a period of strong global market performance, the narrative has shifted toward international investing. According to him, both views are influenced by recency bias.
Investors often become convinced that the asset class or market that has performed best recently will continue to do so in the future. However, market history shows that leadership rotates across countries, sectors, styles, and asset classes.
