Balanced Advantage Funds cap losses amid market’s bear run

Balanced advantage funds or dynamic asset allocation funds, which invest between 20% and 90% of their corpus in equities based on a mix of fundamental and technical parameters, have managed to contain losses better than plain vanilla equity schemes. Meant for risk-averse investors, these schemes reduce volatility in the portfolio and preserve capital in the case of a sharp fall. The Nifty has lost almost 34% from its peak on January 20. In the past three months, the best performing funds in the category have lost 10-15%. These schemes have been popular among investors in the past two years when many equity schemes were struggling to make money despite markets being on a record-breaking spree. Analysts said the outlook for equities remain uncertain at least in the next one year. A mix of equity and debt could help reduce sharp swings in returns. ET takes a look at four schemes on the basis of their one-year performances.

Edelweiss Balanced Advantage Fund

Fund Manager: Bhavesh Jain, Bharat Lahoti & Gautam Kaul

AUM: ₹1,429 crore

1-year return : -7.03%

The scheme follows a pro-cyclical investment approach where the fund managers allocate more to equity in a bull market and reduce equity in bear market cycle. The in-house proprietary model takes into account quantitative factors along with fundamentals. The fund consists of a core equity portfolio and high quality debt portfolio or special situation ideas.

This has helped in this market with the fund coming out as a winner. With a low equity exposure of 35% before the crash, the scheme has gradually inched it up to 50-60% at present.

Axis Dynamic Equity

Fund Manager: Anupam Tiwari, R Sivakumar

AUM: ₹1,736 crore

1-year return : -7.57%

An equity exposure as low as 30% has been one of the key reasons for the fund’s outperformance. Financial planners believe this suits long term investors only. The fund manager uses a mix of three factors — PE ratio, trend and volatility — to determine the equity allocation, with rebalancing happening only once in two months. Valuation is determined by the trailing PE of Nifty 50, volatility by the 30-day standard deviation of Nifty50 with it being high if greater than 17% and low if less than that. The final component trend is represented by two variables — the difference between the 90-day and 15-day moving average of the Nifty 50, and the rate of change of the 90-day moving average of the Nifty50.

DSP Dynamic Asset Allocation Fund

Fund Manager: Atul Bhole and Saurabh Bhatia
AUM: ₹1,304 crore

1-year return : -7.77%

Higher allocation to defensives like FMCG, consumption and pharma and a lower allocation to equities in 2019 has helped this fund outperform its peers. The fund managers use a combination of fundamental factors and technical signals to arrive at an equity allocation in the portfolio. On the fundamental side, they use parameters like P/E and P/B ratios, while on the technical side they compare the Nifty50 index values to its 50- and 200-day moving averages for evaluating signals on market trends. The fund managers have used the fall in equity markets to increase equity allocation to 70% as of March-end.

Tata Balanced Advantage Fund

Fund Manager: Rahul Singh, Sailesh Jain & Sonam Udasi
AUM: ₹1,062 crore

1-year return : -8.47%

While this fund, too, uses a PE-based approach to determine equity allocation, it differentiates itself from other funds as it uses the average of trailing plus forward P/E, which the fund manager believes ensures that the equity component adequately reflects the projected earnings. In addition, the model also allows 10% variation to the basic P/E-based equity allocation driven by a mix of correlation to select global markets and the use of momentum indicators. In February, the equity allocation stood at 30%, inched up to 40% in early March and came to 60% by March-end. This strategy along with a three-fourths equity allocation to large-cap stocks help the fund come up a winner.