Dynamic performance from all-weather fund

Dinesh Balachandran

Fund Manager

SBI Dynamic Asset Allocation Fund

  • Uses technical – quant model for asset allocation which focuses on momentum, Rate of change of momentum and momentum exhaustion
  • Model is truly dynamic in nature and both equity and debt allocation have varied from 0% to 100% in the last 18 months – current equity exposure at 25%
  • No active security selection – mimics the index on equity, sticks to 10 yr G-Secs in bonds and CBLO for cash
  • Sharply differentiated dynamic strategy is helping drive league-table-topping performance

WF: What are the factors that go into your asset allocation model and what are these factors now signaling in this present market correction?

Dinesh - The model is technical-quant in nature and has three main components: 1) Momentum, 2) Rate of Change of Momentum and 3) Momentum exhaustion. The model has adopted a conservative allocation to both equity and debt in the current market correction.

WF: How has the debt-equity allocation moved over the last 18 months in response to the different phases of the market we have seen in this period? What is your current allocation to equity?

Dinesh - The model is truly dynamic in nature and both equity and debt allocation have varied from 0% to 100% in the last 18 months. Current allocation to equity is around 25%.

WF: What factors in your opinion are helping you outperform peers in this very challenging market environment?

Dinesh - The fund is driven by an in-house proprietary model which has the advantage of being truly objective in nature. Further, the fund does not do any active security selection which has helped in the current market environment.

WF: What is the investment philosophy for stock picking on the equity side? Are you currently favoring more of defensives in this corrective phase?

Dinesh - As mentioned above, the fund does not do any active stock (or debt) picking. It simply tries to mimic the Sensex/Nifty index.

WF: What is your strategy for the debt side of the portfolio and specifically your policy on credit risk?

Dinesh - The fund differentiates between debt and cash as an investment class. On the debt side, the fund can only invest in 10yr G-Sec paper. On the cash side, it primarily invests in overnight CBLO window or extremely short maturity cash proxies like T-Bills. The fund does not take any credit calls.

WF: Dynamic asset allocation funds are positioned as solutions that capture most of the upside in a bull phase and protect considerable downside in a bear phase. Can you please take us through how your fund has done vs this positioning during the 2017 upswing and the corrective phase of 2018?

Dinesh - The fund managed to almost match the Sensex Index return in 2017 and has meaningfully outperformed it so far in 2018. From that perspective, the fund has done reasonably well.

WF: The fund has a leeway of investing between 0% - 100% in either equity or debt – Is there a possibility in the future that the fund may have such extreme allocations into either of the asset classes?

Dinesh - The fund has had such allocation to both equity and debt in the past and is likely to do so in future as well.

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