Are balanced advantage funds shielded from downside risk?

Are balanced advantage funds protected from downside risk, like the drop seen in March 2020? - Anonymous

No, balanced advantage funds are not entirely insulated from equity market fluctuations. This is because they allocate a certain portion of their assets to equities, which subjects them to market volatility. However, the degree of fluctuations they experience is generally less than that of pure equity funds due to their partial equity allocation.

Another point to note is that there's no uniform equity exposure across all balanced advantage or dynamic asset allocation funds. Based on recent portfolio disclosures, the net equity exposure in these funds ranges from 14 per cent to as high as 80 per cent. This implies that their response to a market downturn would vary widely. Moreover, even within a single fund, the impact of a market decline can differ over time as these funds adjust their equity exposure dynamically.

To summarise, while balanced advantage funds are exposed to the market's ups and downs, the impact varies significantly across the category.

Also read: Why do small-cap funds invest in mid-cap companies?