Though the name and objective imply that it's an asset allocation fund, it has been run like a normal diversified equity fund. Its 'dynamic' bent is its leeway to go fully into debt or equity at the discretion of the fund manager. As the markets goes up, equity exposure is reduced and cash levels are upped. The reverse takes place when the market goes down.
The actual asset allocation of the fund is decided on the basis of an in-house price-to-book value model.
Obviously, such a strategy would limit the fund's gains during market run-ups. In 2007, the fund returned just 40.78 per cent (category average: 61.56%). The exposure to IT stocks, which were reeling under the pressure of rupee appreciation, did not help.
In 2009 the fund delivered somewhat in line with the category average (80%) though it averaged a cash exposure of 15 per cent. This time it missed out on the rally in Auto. This is typical of the fund because the fund manager selects stocks on the basis of the risk-return tradeoff. “We try to avoid stocks which are very over-owned while buy those which are under-owned if they are cheap. So, on this day, for example, we have good exposure to Oil & Gas,” is what Naren says.
But the fund has shown excellent downside protection capabilities. It has been successful in curtailing its fall to a lower level in 10 of the 12 quarters when its category has been in red.
This year when the category lost 16.77 per cent on an average, the fund lost 14.16 per cent (as on September 30, 2011). Even in 2008, the fund was better off than most of its peers. It lost just 44.79 per cent and was the fourth least hit fund in its category (average fall: -54.79%). But the nature of the strategy ensured that the fund was invested on an average 14 per cent in debt and money market instruments which went to as high as 22 per cent (September 2008). The increased exposure to Healthcare and FMCG sector also helped.
Till mid 2009, the fund had a blended portfolio of large and mid caps and was classified in the 'Equity: Multi Cap' category. Over the past year, the large-cap exposure of the fund has shot up causing a shift to the 'Equity: Large & Mid Cap' category.
The fund also has a high portfolio turnover ratio (131%) and since May 2010 there has been an increase in the number of the stocks in its portfolio to now average around 78. Since this is the result of the merger of three schemes into this one, over time the number will once again drop.