DSP BlackRock Mutual Fund announced the launch of its open ended fund of funds scheme called DSP BlackRock Dynamic Asset Allocation Fund (DAAF).
This fund will dynamically manage its asset allocation between two equity funds and two debt funds of DSP BlackRock MF based on relative valuations of equity and debt market. The equity portion will be invested in DSP BlackRock Top 100 Equity Fund and DSP BlackRock Equity Fund while the debt portion will be invested in DSP BlackRock Strategic Bond Fund and DSP BlackRock Short Term Fund.
Sharing the rationale behind launching this fund S Naganath, President & CIO, DSP BlackRock Investment Managers said, “Many investors are often stuck in a dilemma of asset allocation and timing the market – the common questions are how much to invest in debt and equity, in what proportion and when to put money. Hence, to address these issues, we have launched DAAF through our extensive research and experience. The scheme will allocate its assets based on prevailing market conditions.” He struck an optimistic note and was confident that the fund could deliver good returns to investors with a time horizon of three years. Also, the fund could help investors limit their downside risk during the crisis years, he added.
The factor that would be used for determining the asset allocation is the Yield Gap ratio, which is the ratio of debt market yield to equity market yield. 10Y G-Sec yield is used as the proxy for debt market yield, while earnings yield of equity markets is simply the reciprocal of the Nifty Price/Earnings ratio. By evaluating the ratio of these two yields, one can assess whether equity markets are overpriced or underpriced relative to debt markets. The model also considers the Modified Yield Gap ratio, which uses 1Y G-Sec yield in the numerator.
The fund will calculate both these ratios on a daily basis. If the difference between the two ratios is greater than 0.05, the fund will use yield gap ratio and in case the difference is less than 0.05, the fund will use modified yield gap ratio.
Equity allocation vs. yield gap levels
|
Yield Gap Ratio |
Equity Allocation |
Modified Yield Gap Ratio |
Equity Allocation |
|
less than 1.10 |
90% |
less than 0.7 |
90% |
|
1.10-1.20 |
80% |
0.7-0.8 |
80% |
|
1.20-1.30 |
70% |
0.8-0.9 |
70% |
|
1.30-1.40 |
60% |
0.9-1 |
60% |
|
1.40-1.50 |
50% |
1-1.1 |
50% |
|
1.50-1.60 |
40% |
1.1-1.2 |
40% |
|
1.60-1.70 |
30% |
1.2-1.3 |
30% |
|
1.70-1.80 |
20% |
1.3-1.4 |
20% |
|
More than 1.80 |
10% |
More than 1.4 |
10% |
The model has trigged an allocation of 10% to equity based on the current market conditions (as on December 31, 2013), said the fund house.
The fund house has back-tested the model by tracking the returns of Nifty, Yield Gap Model, PE Model, and that of CRISIL Balanced Fund Index for the last 13 years. The fund has outperformed price earning model, Nifty and CRISIL Balanced Fund Index, said the fund house. The fund house claims that Rs 100 invested in November 2000 would have grown to Rs 1600 in yield gap model whereas the same amount would be Rs 800 in PE model.
Pankaj Sharma, EVP, DSP BlackRock Investment Managers said that the fund’s asset allocation has changed 48 times in the past 13 years based on their back-testing. He said that the relevant metrics will be tracked on a daily basis and rebalancing will be done whenever the model suggests.
DAAF will be benchmarked against CRISIL Balanced Fund Index. The scheme will charge an exit load of 1% if redeemed within a year and 0.5% if redeemed after a year but before two years. No exit loads will be charged thereafter. Apoorva Shah and Dhawal Dalal will co-manage the fund.
The NFO opens for subscription on January 17 and closes on January 31.