Participate, Not Perspire – Invest peacefully through Mirae Asset Balanced Advantage Fund!

We often hear experts saying that it’s a futile exercise to time the markets as it’s extremely difficult if not impossible to do so. This is because equity as an asset class can be very unpredictable in the short term as multiple factors – known or unknown, can drive the returns of equities in the very short term. This very nature of equities often drives away investors or influence their investment decision making. Therefore, investors require a tool or a solution that can help them tide over this short-term market volatility and provide a relatively smoother or a balanced investment experience.

Well, he may consider investing in Mirae Asset Balanced Advantage Fund which dynamically changes it’s equity allocation commensurate to change in the market conditions with the help of an underlying proprietary model. The Fund aims to participate reasonably well during upside market phases as well as protect during market corrections. While, it’s important to participate during uptrends in equities, it’s equally important, if not more, to protect the portfolio on the downside or when equities correct. Let’s understand this in Mathematical terms - while it takes +50% gain to get to from 100 to 150, but if you lose 50% on a base of 150 i.e. 75, then it will need a gain of +100% to get back to 150. Hence, it’s very important to lose less.

So, the question is how do we gain reasonably well from the upside while losing less on the downside? Historically, we have observed that it is eventually the valuations that drive the equity returns in the medium to long run. Hence, valuations as a factor can be an important guiding factor in understanding the cyclicality in equity returns.

Talking about Mirae Asset Balanced Advantage Fund – it follows a Valuation centric asset allocation model which is a combination of PB (relatively higher weightage) and PE (relatively lower weightage). A composite valuation score helps in assessing whether the valuations are cheaper or expensive with respect to their historical averages. So, when the composite score is lower, the model suggests a higher equity allocation and when the composite score is higher, it suggests a lower equity allocation. In this manner, the fund is able to participate meaningfully on the upside by increasing equity exposure during market uptrends and limiting downside by reducing the equity exposure during market corrections. While asset allocation is model driven, the fund manager has the flexibility to fine tune the equity exposure within a band of (+/- 5%) in light of any change in fundamental or qualitative factors. The fund also seeks to provide alpha over the medium to long term on its active equity portfolio through its bottom up stock selection approach. Further, the fund’s strategy has been to allocate more towards large cap stocks with an endeavor to deliver risk adjusted returns. In terms of upside participation as well as downside protection, the Fund has performed reasonably well over its limited track record.

To conclude - It is a model driven Fund which strives to achieve - equity market down side protection, upside participation and smoothen the volatility; with debt and arbitrage allocations. In addition to Model allocation, the fund also attempts to generate relatively better returns through it’s actively managed equity portfolio. The equity portfolio is managed conservatively and hence, maintains a large cap bias. The fund also provides tax efficient returns on two counts: 1) No taxation on portfolio rebalancing within the fund and 2) Fund qualifies for equity taxation, hence, leads to relatively lower tax implication on redemption.

The Fund may be suitable for investors who seek lower volatility than equities but better returns than fixed income over the medium to long term. An individual investor who does not have the expertise and does not want to take the hassle of monitoring and dynamically changing the asset allocation regularly and at the same time seeks tax efficient returns may consider investing in this fund. So, participate, not perspire – invest peacefully through Mirae Asset Balanced Advantage Fund.