ICICI Balanced Advantage fund equity allocation at 22 month low

One of the country’s biggest asset allocating mutual funds has cut its exposure to equities to the lowest in 22 months with share valuations rich after the sharp run up in the markets. ICICI Prudential Balanced Advantage Fund, with assets of Rs30,000 crore has brought down its equity allocation to 37.91% as of February. The last time this scheme, which invests in a mix of stocks and bonds, had equity exposure around these levels was in April 2019 at 38.3%.

“Given that equity valuations are no longer cheap after the sharp run in the markets and in line with the model, we have reduced equity allocation, says S Naren, CIO, ICICI Prudential MF told ET.

Dynamic asset allocation or balanced advantage funds allocate less to equities when valuations turn expensive and vice versa. The equity component in this category varies between 30-80% depending on market conditions.

The fund had increased its equity allocation to 74% in March 2020, when the markets fell on fears of the pandemic. Post that as the equity market continued to move upwards, the scheme has been gradually reducing its equity allocation bringing it down to 68% by June 2020 to 59% in October 2020, then to 43% in January 2021.

Fund managers have been worried about the market prospects as valuations turned rich buoyed by a flood of liquidity from foreign funds. Many first time investors have been investing in the market through balanced advantage funds as these protect downside. These funds enable investors to do away with timing the markets as this strategy has built-in profit booking at higher equity valuation.

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Most balanced advantage funds which follow a counter cyclical mode have reduced equity allocation in the space. “Whenever markets are at a premium to our fair value we reduce equity allocation,” said G Pradeepkumar, CEO, Union Mutual Fund, which runs one of the top-performing balanced advantage funds. Union Balanced Advantage Fund has bought down its equity allocation to 30% in February from 75% in March 2020.

Most other funds in this category too have lowered their equity allocations. Kotak Balanced Advantage Fund, which saw its equity allocation rise to 79% on March 25, 2020, has brought it down to 32.4% on March 1, 2021. Aditya Birla SL brought down equity allocation from 75% in March 2020 to 39% in Feb 2021

Edelweiss Balanced Advantage Fund is an exception. The scheme, which follows the momentum in a market, had an average equity exposure of 40% in March 2020. This has now risen to 66%.


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