Mastering The Market’s Moods: A Dynamic Approach To Managing Volatility

The equity market is going through a challenging phase amid heightened geopolitical tensions, particularly due to the escalation of the West Asia conflict alongside emerging domestic macroeconomic headwinds. Amid this, it is essential for investors to stay vigilant, and consider a prudent investment strategy. Adding a balanced flavour to the portfolio can help you manage volatility and take advantage of both equity and debt.

If you are concerned about market volatility, you may consider ICICI Prudential Balanced Advantage Fund (IPBAF). This fund is one of the oldest schemes in the category with a proven track record of skillfully managing equity and debt based on market changes.

Portfolio

The fund dynamically manages its net equity exposure within a 30-80 per cent range, guided by an in-house valuation model based primarily on price-to-book value. The fund manager takes a call to increase equity exposure when valuations are attractive and reduces the exposure when valuations are expensive. There are many instances in the last 10 years when the fund has reduced equity exposure in the range of 30-35 per cent when market valuations were expensive.

While the market is witnessing high volatility and equity valuation is in fund managers’ comfort zone, the net equity exposure is at 74.38 per cent. When the valuation in equity market stretches, the fund uses hedging strategies to ensure that the effective equity investment level remains above 65 per cent to maintain tax efficiency.

The fund follows a conservative approach for equity investments and does not go overboard on small caps. It sticks with large caps along with 7-10 per cent exposure to mid caps.

Performance

The fund has been a consistent performer. In the last 10 years, it delivered a compounded annualised return of 11.16 per cent, compared to 11.03 per cent by Nifty TRI.

Outlook Money Take

Investors who want low volatility and have at least a 5-year horizon may consider this fund. While it may not offer superior returns, it can provide decent returns with lower volatility.

kundan@outlookindia.com