Smart Surfing In A Turbulent Market

- M Rajendran

Since the last 24 months, equity was rising and valuations remained costly. There was an inherent fear among investors that markets might crash.

The fund managers advised everyone to stay invested.

So when the balanced funds started performing well, they witnessed a rise in price to earnings and price to book parameters. Balanced Advantage Funds (BAF) are dynamic asset allocation funds which switch between equity and debt based on quantitative parameters, thus containing the volatility.

During that period, fund managers converted that money into debt. So if they were investing 85 per cent earlier to generate alpha in the equities, the new trend was to reduce the exposure by 10–15 per cent and manage it with 65 per cent in equity and 35 per cent in debt.

This was a good strategy, since the interest rates were falling.

When the interest rates fall, the price of the bonds go up, this results in an investor making capital gains. This was the reason for attractiveness for BAF, which suddenly saw its popularity going up.

“The fund with its auto-rebalancing mechanism alleviates need for regular portfolio shifts based on changing market conditions. Hence, the fund can be included as a part of core investment portfolio of any investor. We believe the product is well suited for investors with a moderate risk appetite and medium to long-term investment horizon,” says Manish Gunwani, CIO-Equity Investments, Reliance Nippon Asset Management.

This way the investor does not need to constantly track the fund or take calls on rebalancing between equity and debt, based on the market movement.