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Are dynamic asset allocation funds the way to go?

Dhirendra Kumar shares why he has no conviction for dynamic asset allocation funds.

With most of the equity funds being standardised by SEBI about their investment universe, it leaves less room for fund managers to take actions during situations such as the Covid-19 pandemic. Against this backdrop, is dynamic asset allocation the way to go?
- Durai Raj

We, at Value Research, have always mentioned that first-time investors should start their investment journey with hybrid funds, as these funds are flexible to invest in both fixed income and equity and therefore, can help protect investors from the downside during volatile times. Similarly, while investing in an equity fund, choose a multi-cap fund as these funds can invest in all categories. A large-cap or a small-cap fund, on the other hand, has to allocate a minimum defined percentage of the portfolio to companies in a particular market capitalisation range irrespective of the market conditions.

Having said that, I am still not a believer of dynamic asset allocation funds. This is because these funds depend on how precisely fund managers have been able to take a call on the markets. Unfortunately, these funds haven't done well in the past and their returns over 10-20 years have been less than those of equity funds.

I have a liking for fund managers who work in a disciplined manner to choose good companies that can generate value for investors. While all fund managers can go wrong once in a while, if a fund manager calls on stocks tends to go wrong for quite a couple of times, one should stay away from such funds.

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