FT India Dynamic PE FoF's 5-year annualised return of 24.43 per cent (June 30, 2009) makes it a haven for risk-averse investors.
Being a Fund of Funds (FoF), it invests in Franklin India Bluechip, an open-end equity diversified fund, and Templeton India Income fund, a medium-term debt fund.
The asset allocation strategy is simple. The fund manager can go wholly into equity or debt, depending on the market. He will increase the equity allocation when the market is falling and the opposite when it's rising. To identify the direction of the market, he relies on the Price-Earning (PE) ratio of the Nifty. At a low PE, equity allocation will increase, but decrease when the PE begins to rise.
The PE of the benchmark shot up from 18.40 (March 31, 2007) to 22.58 on September 30, 2007. During that period, equity exposure dropped from 60.24 to 52 per cent. Since the portfolio is disclosed every six months, we are unable to comment on the fund's equity allocation when the slide began in January 2008. By March 31, 2008, the allocation to equity stood at 50 per cent, which rose to 58 per cent (September 30, 2008).
By March 2009, when the PE was close to all time low (14.30), the fund was almost fully invested in equity (91%).
Loyal to its mandate and impressive in performance is how we would describe it.