GEMGAZE
February 2012

The art of asset allocation

It has been grilled into our head that asset allocation is a must if we want our investment plan to succeed. The first thing that you have to set is your life goals. Next, you have to decide on the instrument (or asset class) that will help you reach the goal. Again, there is the tedious process of reviewing the investment portfolio and rebalancing it — if there is a need — in case the investment landscape undergoes a change. If you are curious to see how asset allocation works, you can check out the fund of funds from mutual funds. These funds will help you in allocating money across different asset classes, depending on your investment goals and risk-taking ability. An asset allocation fund is an open-ended fund of funds that seeks to generate superior risk-adjusted returns to investors in line with their asset allocation. Put simply, the fund first defines an asset allocation and then identifies a basket of the funds in which it will invest to achieve the pre-defined asset allocation. The best part of investing in a fund of fund is that you will get access to a basket of funds with different investment styles that will invest according to your asset allocation plan. It saves the time needed for investing in multiple schemes and tracking them.

All the GEMs in the February 2011 GEMGAZE have retained their preeminent position in the February 2012 GEMGAZE, thanks to their consistency and stability.

FT India Life stage Fund of Funds Gem
Magic formula of life

Franklin Templeton AMC has five plans based on life stages that will suit your age profile - FT India Life Stage FoF 20s, FT India Life Stage FoF 30s, FT India Life Stage FoF 40s, FT India Life Stage FoF 50s Plus, and FT India Life Stage FoF 50s Floating Rate. All these are plans of a single fund that has assets of around Rs 165 crore. The AUM of each plan is Rs 10.59 crore, Rs 7.34 crore, Rs 12.09 crore, Rs 16.31 crore, and Rs 118.05 crore respectively. The top three sectors in the portfolio are finance, energy, and technology (not necessarily in that order), with technology being replaced by metals in the case of the penultimate plan. Allocation to large caps in the various plans range from a low of 62% to a high of nearly 75%. The allocation to equity tapers from 67% in the first plan to a measly 18% in the last plan. The one-year returns of the plans are 7.11%, 7.84%, 7.99%, 7.82%, and 7.79% respectively. They have all surpassed their respective category averages but for the last plan. While the expense ratio for all the plans is the same at 0.75%, the portfolio turnover ratio is 14.38%, 8.8%, 6.2%, 26.61%, and 40.41% respectively.

ICICI Prudential Advisor Series Gem
Precious advice

ICICI Prudential Mutual Fund offers Fund of Funds through five plans: ICICI Prudential Advisor–Very Aggressive, ICICI Prudential Advisor –Aggressive, ICICI Prudential Advisor–Moderate, ICICI Prudential Advisor–Cautious, and ICICI Prudential Advisor–Very Cautious. The AUMs of Aggressive, Moderate, and Cautious Plans are Rs 6.9 crore, Rs 5.62 crore, and Rs 3.09 crore respectively. The top three sectors in the portfolio are finance, energy, and technology. Allocation to large caps hovers around 70% in all the plans. The allocation to equity is 52%, 41%, and 13% respectively. The one-year returns of the plans are 12.78%, 10.77%, and 10.23% respectively. They have all surpassed their respective category averages. While the expense ratio for all the plans is the same at 0.75%, the portfolio turnover ratio is very high at 96%, 199%, and 95% respectively.

Birla Asset Allocation Plan Gem
Defensive bargain

Birla Asset Allocation Plan is an open-ended fund of funds that offers three plans – Aggressive, Moderate, and Cautious Plans. The AUM of Aggressive, Moderate, and Cautious Plans is Rs 14.08 crore, Rs 8.46 crore, and Rs 6.5 crore respectively. The top three sectors in the portfolio are FMCG, finance, and automobile. Allocation to large caps hovers around 60%. The allocation to equity is 72%, 41%, and 24% respectively. The one-year returns of the plans are 4.27%, 4.55%, and 6.23% respectively. The expense ratio for all the plans is low at 0.35%.

FT India Dynamic PE Ratio Fund of Funds Gem
Auto timing the markets

FT India Dynamic PE Ratio Fund of Funds is a hybrid fund, which moves into equity and debt in an automated manner. The fund protects downside and behaves conservatively because of its mandate. In other words, the fund automatically rebalances its asset allocation. The AUM of the fund is an impressive Rs 1506 crore. The top three sectors in the portfolio are energy, finance, and technology. Allocation to large caps is high at 89%. The allocation to equity at present is 60%. The one-year return of the fund is 7.72%. While the expense ratio is at 0.75%, the portfolio turnover ratio is 44%. During five- and three-year periods, the fund clocked a compounded annualised return of 13.4% and 11.6% and bettered the Sensex by 3.5 percentage points and 6 percentage points respectively. It also comfortably outpaced its benchmark CRISIL Balanced Fund index. The fund, which dynamically allocates between equity and debt, is an apt choice for investors who want to have equity exposure but are shy of risks and volatility associated with it.