WOBAF is an open-ended dynamic asset allocation scheme investing in equities (65-100%), arbitrage (0-50%), and debt or cash in the range of 0-35% with the weight of net equities in the range of 30-80%.
Balanced Advantage Funds have been one of the most popular categories in the Rs 40 trillion Indian mutual fund (MF) industry in the past year, with inflows worth Rs 11,658 crore. New entrant WhiteOak Capital Asset Management wants a piece of it, and has launched its seventh mutual fund scheme, a balanced advantage fund, in the Indian market.
Called WhiteOak Capital Balanced Advantage Fund (WOBAF), the scheme will switch between equities and debt assets. The new fund offer (NFO) opens on January 20, 2022.
What is on offer?
WOBAF is an open-ended dynamic asset allocation scheme investing in equities (65-100%), arbitrage (0-50%), and debt or cash in the range of 0-35% with the weight of net equities in the range of 30-80%.
The scheme’s allocation will be higher in equities when valuations are low and lower when valuations are high.
According to the fund house, a ‘counter cyclical’ model will be followed to decide allocation between equity and fixed income.
The model will primarily use two fundamental parameters; price-to-book (P/B) value with overlay of return on equity and yield ratio.
“P/B is an absolute equity valuation indicator, while yield ratio is a relative valuation indicator between equities and fixed income. So, the model is holistic regarding available asset classes. And hence can capture the best out of each asset class. During different regimes different valuation parameters have their strength. For example, from 2001 to 2004, bond yields were high, so bond yield was an important indicator,” said Chirag Patel, co-head products, WhiteOak Capital Mutual Fund.
Part of the WhiteOak Capital Group, the fund house had received regulatory approval for its acquisition of Yes Mutual Fund towards the end of 2021, and subsequently the fund house was renamed WhiteOak Capital Mutual Fund.
WhiteOak Capital MF, which had average assets under management (AAUM) of Rs 1,644 crore for the December quarter, had last launched a large-cap fund in December 2022.
According to Patel, WhiteOak Capital Balanced Advantage Fund would currently be close to net 50% into equities based on its in-house market valuation index.
Globally, equities are expected to underperform during the year amid the sluggish pace of economic growth and further rise in interest rates.
The fund will deploy a hold strategy in the scheme, meaning during a strong negatively or positively trading market it will aim to capture a higher upside and lower its downside. And hence the scheme aims to further improve performance and reduce volatility.
Overall, balanced advantage funds are flexible in nature and the portfolio allocation within these funds is defined based on the growth prospects of both equity and debt. Hence, most of the time the portfolio will be aligned for investment.
“One of the biggest advantages of such funds is that the fund manager can build and update the portfolio based on market conditions. They can increase or decrease the allocation in equity or debt depending on the views of the fund house. Such a strategy works for investors who want limited risk and prefer this flexible approach,” said Harshad Chetanwala, co-founder, MyWealthGrowth.com.
Not all BAFs work the same way. It remains to be seen how WOBAF moves between equities and debt as time goes by, especially in volatile markets.
BAFs are best assessed only after seeing their track record. Remember, it’s not just stock selection; it’s also how well the model reads the markets and allocates between equity and fixed-income markets.
Further, WhiteOak Capital Asset Management is a new fund house, with most of its funds less than a year old.
Investors who have mid-duration goals of three to five years can consider balanced advantage funds. At the same time, investors who do not have a risk appetite to invest completely in equities and prefer to have some element of debt along with their investments, can also consider BAFs.
“These funds can work for retired investors who want to withdraw for their monthly expenses after a couple of years of investment,” said Chetanwala.
Experts suggest that investors should first look at existing BAFs in the market with a proven track record before considering a new scheme.
The NFO closes on February 3.
