The Hindu Business Line : OptiMix Asset Allocator Multi Manager FoF: Hold

Unitholders who wish to actively switch between equity and debt can stay with the fund, though the fresh investment would hinge on the consistent accuracy of its strategy.

OptiMix Asset Allocator Multi Manager Fund of Fund (OptiMix Asset Allocator) packs a combination of tactical asset allocation and fund selection. A Fund of Funds, as the name implies, refers to funds that invest in a basket of funds. Their main advantages are that they are typically low-cost, effective methods of diversification and active portfolio management. Investors do not have to worry about fund selection as the FoF does it for them.

Tactical asset allocation: The OptiMix Asset Allocator not only chooses funds based on performance and manager skills, but goes one step further in also determining the allocation between equity and debt. Unlike balanced funds, which tend to be tilted towards either debt or equity, this fund shifts between 100 per cent equity and debt based on a mechanical model designed to predict intermediate market trends.

FoFs are treated as debt funds and, therefore, do not enjoy the taxation benefits of equity funds. However, OptiMix claims that the value added by dynamic asset allocation and fund selection outweighs the higher taxation. Individuals find it difficult to follow a dynamic asset allocation strategy in an easy and tax-efficient manner. On the other hand, very few equity funds take cash calls on their portfolio and usually remain fully invested.

For one, they need to be 65 per cent invested in equity to qualify as an equity fund. Second, selling a significant portion of the portfolio at one time incurs impact costs. OptiMix Asset Allocator can, however, buy and sell funds without incurring the high costs associated with such frequent buying and selling of securities.

In the eight months since its launch, OptiMix Asset Allocator has been actively managed and has moved from being nearly fully invested in equity to being significantly underweight in the asset class. It has also been active in fund selection even as it has stuck to a core portfolio of five to six funds. Unitholders who wish to switch between equity and debt depending upon market conditions can retain the fund. However, the accuracy of its mechanical model of investment and its fund selection expertise would have to be tested over a longer period before fresh investment is contemplated.

Performance: OptiMix Asset Allocator has delivered a return of about 12 per cent since its inception beating its benchmark: the Crisil Balanced Fund Index by about two percentage points. Top performing balanced funds have returned twice as much since. However, much of their outperformance can be explained by the heavy bias to equity. OptiMix Asset Allocator has managed to beat the average debt-oriented balanced fund. OptiMix Asset Allocator was almost fully invested in equity during the initial months after its launch. Since February, however, its exposure to equity has declined to less than 25 per cent. The lower allocation to equity appears to have coincided well with the market correction that began in early February. However, the FoF appears to have been waiting by the sidelines since then, with a substantial cash/liquid fund allocation. The allocation to debt has been limited to liquid funds, probably as the fund waited to take advantage of opportunities in the equity market. Cash has, therefore, been a drag on its recent performance.

Portfolio overview: OptiMix seeks to choose funds with complementary management styles. This is to ensure that performance is more stable and not given to periods of huge out- or under-performance. Funds with a good track record such as DSP ML Equity, HDFC Equity, Reliance Vision and Sundaram Midcap have largely formed the core portfolio of OptiMix Asset Allocator. Periodically, the scheme has invested in value funds such as Templeton India Growth and PruICICI Discovery, as well as sector funds such as UTI Pharma & Healthcare and Magnum COMMA. However, these funds have typically made a brief appearance in the portfolio. For instance, Magnum Midcap and Magnum COMMA were added in December, but exited in February. While the former performed well in that brief period, the latter did not.

The fund also appears to have taken advantage of sharp drops in the index to invest in exchange-traded funds such as the Nifty Bees and the Junior Nifty Bees. This might be relatively difficult for retail investors to implement.

Its March portfolio, however, reflects a conservative approach to equity. The portfolio comprises mainly large-cap funds. Magnum Contra and PruICICI Discovery (with a mid-cap value positioning) have been added as a contrarian strategy. Templeton India Equity Income Fund has been added as the fund diversifies across the equity market.

A detailed FAQ on the scheme's investment strategy and methodology is available on the Web site www.optimixnet.com.

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