SBI Dynamic Asset Allocation Fund: Top performer in the category in last 3 years

Dynamic Asset Allocation Funds are hybrid mutual fund schemes which manage their asset allocation between debt and equity based on market movements. When market movement is favourable to a particular asset class, these funds allocate a greater proportion to that asset class and vice versa. Dynamic asset allocation funds are suitable for investors who do not have high risk appetites because these funds have limited downside risks in unfavourable market conditions. SBI Dynamic Asset Allocation Fund is one of the best performing dynamic asset allocation hybrid funds in the last 3 years (please see Top Performing Hybrid Dynamic Asset Allocation Funds in our research section). The scheme is also the best performing dynamic asset allocation fund in the last 1 year.

Scheme Overview

The scheme was launched in March 2015. It has Rs 304 crore of assets under management. The expense ratio of the scheme is 2.75%. Dinesh Balachandran and Mohit Jain are fund managers of this scheme. While Balachandran has been managing SBI Dynamic Asset Allocation Fund since inception, Jain has been managing the scheme from November 2017. The scheme benchmark is 50% CRISIL 1 year CD Index+50% S&P BSE Sensex. The scheme has given 7.1% returns since inception.

The chart below shows the annualized returns over trailing 1 year and 3 years period of SBI Dynamic Asset Allocation Fund versus the Hybrid Dynamic Asset Allocation Fund category. You can see that the scheme outperformed the category across different timescales.

Source: Advisorkhoj Research

The chart below shows the NAV growth of SBI Dynamic Asset Allocation since inception.

Source: Advisorkhoj Research

Rolling Returns

Rolling returns is the best measure of a mutual fund scheme’s performance because it enables investors to evaluate the scheme’s relative performance in different market conditions. The chart below shows the 1 year rolling return of SBI Dynamic Asset Allocation Fund versus the Dynamic Asset Allocation category since the scheme’s inception.

You can see that though SBI Dynamic Asset Allocation Fund underperformed the category in 2016, it outperformed in other periods. Since January 2017, the scheme has been consistently outperforming its category. The outperformance margin has widened in the past few months. Let now compare some 1 year rolling returns measures of the scheme versus the category.

You can see that the SBI Dynamic Asset Allocation Fund outperformed the category on most measures. Let us now evaluate the consistency of performance of the scheme versus category.

You can see that the SBI Dynamic Asset Allocation Fund has given more than 8% returns 82% of the times since inception, while the Hybrid Dynamic Asset Allocation Funds category gave 8%+ returns 66% of the times. While other schemes in the category gave 15%+ returns more frequently than SBI Dynamic Asset Allocation Fund, the consistency profile of this scheme makes it a good choice for investors who want to get higher than fixed income returns and at the same time, desire stability with limited downside risks.

Investment Strategy and Portfolio

The investment objective of the scheme is to provide investors with an opportunity to invest in a portfolio which is a mix of equity and equity related securities and fixed income instruments. The allocation between fixed income and equity instruments is managed dynamically so as to provide investors with long term capital appreciation.

SBI Dynamic Asset Allocation Fund endeavours to meet the objective of this fund mainly from asset allocation between asset classes. This approach will help reduce the risk of tracking the individual asset classes. The Scheme will allocate higher weight to the asset class that is relatively favourable under the prevailing market and economic conditions.

The optimal allocation between Equity, Debt and Cash will be based on three principles:

- Momentum

- Rate of change in momentum

- Exhaustion of momentum

The Scheme will use the derivatives for portfolio rebalancing.

The current asset allocation of the scheme portfolio is 40% equity and 60% debt. The chart below shows the top holdings and sector composition of SBI Dynamic Asset Allocation Fund portfolio.

Lump Sum and SIP Returns

The chart below shows the growth of Rs 100,000 lump sum investment in SBI Dynamic Asset Allocation Fund since inception.

Your investment would have grown to Rs 127,432; a profit of Rs 27,432 at a CAGR of 7.14%. Since inception the scheme has outperformed other asset classes like Bank FD and Gold in terms of returns.

The chart below shows the returns of Rs 10,000 monthly SIP in SBI Dynamic Asset Allocation Fund since inception.

With a cumulative investment of Rs 430,000 you could have accumulated a corpus of Rs 497,594. The annualized SIP return (XIRR) since inception is 8.43%.

Conclusion

SBI Dynamic Asset Allocation Fund is a relatively new scheme. It has completed around 3.5 years since launch, but the performance of the fund both on a risk adjusted basis and relative to its peers has been quite strong. One of the hallmarks of a well-managed fund is performance consistency. We have seen the SBI Dynamic Asset Allocation Fund has so far showed strong consistency track record. In the volatile market conditions that we are experiencing this year, SBI Dynamic Asset Allocation Fund is a good choice for investors who want portfolio stability and steady returns over a sufficiently long investment horizon. Investors should consult with their financial advisors if SBI Dynamic Asset Allocation Fund is suitable for their investment needs.