These five equity hybrid funds fell 50% less than Nifty during the crash

The NIfty fell 36.85% from Feb 20th 2020 to March 23rd 2020. A look at how dynamic asset allocation funds and balanced advantage funds fared during this period.

Published: April 20, 2020 at 11:08 am

A look at how dynamic asset allocation and balanced advantage funds have fared during the Feb-Mar 2020 market crash. Investors who expected funds in this category to protect them during a market crash were disappointed. The lack of clarity surrounding the nature of this category is a crucial reason. Here are five equity hybrid funds that fell less than 50% of what the Nifty did during the crash.

The problem stems from SEBI’s definition of Dynamic Asset Allocation or Balanced Advantage fund category. It just says, “Investment in equity/ debt that is managed dynamically”. Now, this can mean using a formula (say NIfty PE) or qualitative assessment or both.

That is the category has funds that can change equity allocation as and when they feel like it (e.g. HDFC Balanced Advantage, ICICI Balanced Advantage fund) and funds that are mandated to change allocation as per pre-defined metrics (e.g. DSP Dynamic Asset Allocation Fund, Axis Dynamic Equity Fund). While a fund could be advertised as trying to shift equity allocation as per market conditions, it may not always do so.

That funds that depend on fund management skills and funds that operate based on a set of pre-defined rules are clubbed together.

We study funds in this category in the 32 days from Feb 20th 2020 and Mar 23rd 2020. The Nifty 50 TRI index fell 36.85% in this window. HDFC Balanced Advantages fell 31.65% (86% of NIfty’ fall), and ICICI Balanced Advantages fell of 26.7% (72% of NIfty’s fall)

Both funds (Esp the HDFC one) have significant AUM in the monthly dividend option. These funds are often pushed to senior citizen as a means of “regular monthly income”.

Performance of Dynamic Asset Allocation Funds and Balanced Advantage Funds

The absolute 32-day return between Feb 20th 2020 and Mar 23rd 2020 is listed below

Scheme NameAbs Return
Principal Balanced Advantage Fund-12.7
Shriram Balanced Advantage Fund-14.6
BOI AXA Equity Debt Rebalancer Fund-15.9
Edelweiss Balanced Advantage Fund-16.1
Axis Dynamic Equity Fund-17.0
L&T Balanced Advantage Fund--18.5
DSP Dynamic Asset Allocation Fund-19.3
Tata Balanced Adv Fund--19.4
BNP Paribas Dynamic Equity Fund-19.5
SBI Dynamic Asset Allocation Fund-20.2
Baroda Dynamic Equity Fund-20.7
Nippon India Balanced Advantage Fund--21.8
Motilal Oswal Dynamic Fund-21.9
Franklin India Dynamic Asset Allocation FOFs-22.9
Union Balanced Advantage Fund--23.5
Aditya Birla SL Balanced Advantage Fund--25.5
IDFC Dynamic Equity Fund-26.0
Kotak Balanced Advantage Fund--26.1
Invesco India Dynamic Equity Fund-26.6
ICICI Pru Balanced Advantage Fund--26.7
HDFC Balanced Advantage Fund-(Adjusted)-31.7
ITI Balanced Advantage Fund--33.2

The first five funds fell less than 50% of Nifty’s fall.

  • Principal Balanced Advantage Fund (Nifty PE)
  • Shriram Balanced Advantage Fund (Nifty PE, G-sec)
  • BOI AXA Equity Debt Rebalancer Fund (Nifty PE)
  • Edelweiss Balanced Advantage Fund (moving averages)
  • Axis Dynamic Equity Fund (NIfty PE, moving averages)

All these toppers operate on a set of pre-defined rules. The dominant factors are mentioned within the brackets above. Clearly, rule-based dynamic asset allocation funds have done better during the crash.

Some argue that it is incorrect to judge funds in such a short period. While buy/sell decisions (= judging) should not be based on such short-term performance, what we have above is quite literally a window highlighting the risks of “active/arbitrary” dynamic asset allocation. Investors need to appreciate this before investing in these funds and not just go by past performance in happier times.

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