“Markets shall remain volatile given where we stand today in terms of valuations, the overall economic environment prevailing due to Covid-19, very low interest rates across the globe and the backdrop of one of the best bull rallies we have witnessed since 2009 which is liquidity driven,” said Sankaran Naren, Chief Investment Officer, ICICI Prudential Mutual Fund. He believes it is apt to make lump sum investments in such products now.
These funds enable investors to do away with timing the markets as this strategy has built-in profit booking at higher equity valuations. ET takes a look at five dynamic asset allocation funds based on recommendations by financial advisors:
Assets under management: Rs 1,692 crore
3-year/5-year return (%): 10.40/10.57
The fund manager follows a procyclical approach where he maintains higher equity levels to create wealth if markets continue to rise and lowers equity levels to protect the downside when markets fall. Net equity allocation is maintained between 30-80% with rebalancing done daily. Above 70-80% of the equity portfolio is allocated to large-caps with the balance to midcaps. Debt portion is managed conservatively with the portfolio at the short end not taking any duration calls and allocation to only AAA-rated paper.
DSP Dynamic Asset Allocation Fund
Assets under management: Rs 1,747 crore
Fund Manager: Atul Bhole and Saurabh Bhatia
Top 3 equity holding: HDFC Bank, ICICI Bank, Infosys
3-year/5-year return (%): 9.23/ 9.82
The fund managers use a two-factor asset allocation model which is a mix of fundamentals as well as technicals and could have equity allocation between 20-90%. While fundamental factors like PE, PB ratio decide the core equity allocation, technical signals capitalise on upswings to capture core equity allocation. This model participates in bull phases and limits downside during bear phases. The focus is on buying quality businesses, staying invested and using market corrections to average down costs.
ICICI Prudential Balanced Advantage Fund
Assets under management: Rs 26,123 crore
Fund Manager: Ihab Dalwai/ Manish Banthia / Rajat Chandak / Sankaran Naren
Top 3 equity holding: Reliance, ICICI Bank, HDFC Bank
3-year/5-year return (%): 8.28/ 10.49
The largest fund by assets under management in this category, the scheme adjusts its equity allocation based on the price-to-book-value ratio of the market, with rebalancing done daily. Given the sharp rise in the markets, the current equity allocation is at 58.5 %. The fund’s equity exposure can range anywhere between 30% and 80%, with debt making up the rest. The equity portion is mainly invested in large cap stocks while the debt portfolio is actively managed with the fund manager taking both duration calls as well as investing in below AAA-rated paper to earn higher accruals.
IDFC Dynamic Equity Fund
Assets under management: Rs 1,088 crore
Fund Manager: Arpit Kapoor, Sumit Agrawal and Arvind Subramanian
Top 3 equity holding: Infosys, Reliance, ICICI Bank
3-year/5-year return (%): 8.22 /9.34
This fund also follows the ‘buy low sell high’ model and makes its equity allocation based on the trailing P/E of Nifty 50 index with a minimum 30% and maximum 100%. The equity component is actively managed and the fund manager combines quality stocks with good growth potential. The debt component is actively managed to focus on a short to moderate duration strategy.
L&T Balanced Advantage Fund
Assets under management: Rs 851 crore
Fund Manager: Vihang Naik/ Praveen Ayathan / Venugopal Manghat / Jalpan Shah
Top 3 equity holding: Reliance, ICICI Bank, Bharti Airtel
3-year/5-year return (%): 8.43 /8.20
The fund managers follow the ‘buy low sell high’ philosophy to decide allocation between equity and debt depending on the prevailing market and economic conditions. Some of the metrics considered for deciding the debt-equity mix at any point in time could be the interest rate cycle and equity valuations. The debt component is conservatively managed with AAA-rated holdings and low duration risk.
Note: Returns annualised, as on November 23 AUM