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Pramerica Dynamic Fund
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Indian Equity Markets have given fabulous returns over the years… but as
investors have we seen similar returns in our portfolio?
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Indian Equity Market Returns
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` 1 Lakh invested in Sensex on
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Value as of 21st Oct, 2010
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21st October 2009
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` 1.19 Lakh
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21st October 2007
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` 1.15 Lakh
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21st October 2005
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` 2.51 Lakh
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21st October 2000
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` 5.59 Lakh
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21st October 1990
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` 15.96 Lakh
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1st April 1979 (Since inception of Sensex)
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` 202.60 Lakh
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(Source: Bloomberg)
What we normally try and do is to "Time the market!" But, do we actually succeed
in doing this? We may get it right once, twice, but can we get it right every time?
Also, when we look back it all looks so simple. But unfortunately in the heat of
the moment, we end up doing just the opposite most of the times.
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In hindsight…
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Market Level
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Time Period
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I wish I had…
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2667
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26th Sept 2001
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Bought
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20812
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7th Jan 2008
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Sold
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8695
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25th Nov 2008
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Bought
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20465
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3rd Nov 2010
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An answer!
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There is volatility in the market and will always remain. But is there a way to
make this volatility work in our favour? Can we attempt to buy low and sell high?
Can we get it right most times?
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Presenting Pramerica Dynamic Fund, powered by ‘Pramerica DART’
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Pramerica Dynamic Fund is a dynamic asset scheme, powered by Pramerica Dynamic Asset
Rebalancing Tool or 'Pramerica DART', a proprietary tool developed by Pramerica
Mutual Fund to suggest an optimum asset allocation mix between debt and equity.
Pramerica DART works on the theory of mean reversion. The theory of mean reversion
suggests that prices and returns will eventually move back towards the long-term
average, in other words – what goes up, will eventually come down! The allocation
of funds between will depend on the market situation, eg. When the markets are looking
expensive, Pramerica Dynamic Fund will book profits and when the markets are cheap,
it will buy more equities.
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How does Pramerica DART work?
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- Pramerica DART takes into account various factors that have an impact on
the market. These factors can be grouped under 3 key categories – factors that are
based on a company’s fundamentals, factors that affect market volatility
& factors related to monetary liquidity. Everyday, the model churns out the
optimum asset allocation split, called the Pramerica DART Score which tells
us how much of equity should be held in the portfolio. This can range from 100%
to 30% in equity depending on how expensive or cheap the market is looking.
- Within this equity, the Fund Manager decides which stocks to buy.
- Pramerica DART aims at reducing volatility and delivering equity comparable returns.
The simple premise on which this has been built is – Buy more equity when its going
cheap and sell when its expensive.
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But will Pramerica DART be able to achieve this?
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We tested Pramerica DART based on SENSEX data from 1st Jan, 2001 to 18th October
2010 (during which period the stock market has been through 2 market cycles of boom
and bust) And the results were very convincing, as shown in the illustration below:
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Pramerica DART Asset Allocation Illustration from 1st Jan 2001 to 18th Oct 2010
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Thus, with Pramerica DART, you would have known what exactly to do, when!
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Market Level
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Time Period
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I wish I had…
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Equity Exposure Pramerica DART Score
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2667
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26th Sept 2001
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Bought
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100%
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20812
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7th Jan 2008
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Sold
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48.02%
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8695
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25th Nov 2008
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Bought
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100%
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20465
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3rd Nov 2010
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An answer!
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Don’t worry Pramerica DART has it!
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And as the markets started touching 20,000 again, Pramerica DART has indicated cutting
down the equity exposure. On 3rd November, 2010 when the SENSEX was at 20,465 points,
Pramerica DART Score for equity exposure was 68.6%.
So, if you have missed the market opportunities due to market volatility, don't
regret in hindsight. Let Pramerica DART do the hard work for you, while you sit
back and enjoy the benefits!
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Pramerica DART: Back-testing of Simulated Portfolio
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We further tested Pramerica DART on a simulated portfolio, wherein the equity portion
replicated the Sensex returns and the debt portion replicated liquid fund returns.
Over a 1 year, 3 year and 5 year time frame, the simulated portfolio using Pramerica
DART has yielded Sensex-comparable returns, with significantly lower volatility.
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1 year
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3 year
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5 year
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DART Portfolio
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Sensex
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DART Portfolio
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Sensex
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DART Portfolio
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Sensex
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Min.
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-32.5%
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-56.3%
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0.1%
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-24.2%
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73.2%
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39.4%
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Max.
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103.0%
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110.4%
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289.9%
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327.5%
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443.1%
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591.6%
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Avg.
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25.4%
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25.7%
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102.5%
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105.5%
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240.0%
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248.7%
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Stdev
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29.0%
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34.5%
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55.0%
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77.2%
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81.7%
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126.6%
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Sharpe Ratio
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0.67
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0.57
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1.52
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1.12
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2.52
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1.70
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* Incase of instruments with put options within a period of 400 days, the residual
maturity will not exceed 3 years
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Assumptions
- The equity portion of the portfolio replicated the Sensex returns, while the debt
portion replicated liquid fund returns
- The simulation did not consider inflow or outflow of funds.
- The daily return of the portfolio = Equity exposure x Sensex returns + Debt exposure
x liquid returns - transaction costs - AMC costs
- Back-testing date from 1/1/2001 to 30/09/2010.
- Results above simulated Portfolio are not indicative of actual performance.
- Above results are based on Daily rolling returns from 01/01/2001 to 30/09/2010.
- Pramerica DART Portfolio returns are net of 2% expenses annually.
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Further, we also compared the 3-year rolling returns of the simulated portfolio
with Sensex for the period from 1st Jan 2001 to 30th Sept 2010 and found that Pramerica
DART significantly reduces the risk of losing money, as shown in the table below.
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3 year rolling period
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Sensex
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Simulated Portfolio
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Observations
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2465
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2465
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Observations with negative returns
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128
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0
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Min. (Annualised Returns)
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-9%
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0%
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Max. (Annualised Returns)
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62%
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57%
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Assumptions: Based on same assumptions as given earlier. (*Observation for a 3-year
rolling period means each instance from (i) 1-1-2001 to 31-12-2003, (ii) 2-1-2001
to 1-1-2004, and so on).
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The illustration shows that Pramerica DART significantly reduces the risk
of losing money
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Who should invest in Pramerica Dynamic Fund?
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If you want to enjoy the benefits of reduced volatility and yet get equity comparable
returns, through active diversification between equity and debt in a disciplined
manner then, Pramerica Dynamic Fund is the right product for you to invest in.
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Important Information: Pramerica Dynamic Fund :
Name of the Scheme: Pramerica Dynamic Fund. Scheme Classification:
An open ended Dynamic Asset Scheme. Investment Objective:
To achieve long term capital appreciation by investing in an actively managed diversified
portfolio consisting of equity and equity related securities including derivatives, debt
and money market Instruments. Assets Allocation: Equity & Equity related instruments :
30% to 100%. Debt & Money Market instruments : 0% to 70%.
Terms of issue and sale and redemption of units: The scheme offers sale and redemption
facility at NAV based prices on all business days during the ongoing offer. NAV of the Scheme will
be calculated and disclosed at the close of every Business Day. Load Structure:
Entry Load: Not Applicable, Exit Load:
@ 2%, If the Units are Redeemed / Switched-out on or before 365 days of allotment; @ 1%,
If the Units are Redeemed / Switched-out after 365 days, but on or before 730 days of
allotment; NIL, If the Units are Redeemed / Switched-out after 730 days of allotment
Recurring Expenses: Recurring expenses including the investment
management and advisory fee that can be charged to the Scheme shall be subject to a percentage
limit of average weekly net assets @ 2.5% for the first 100 crore; @ 2.25 %, next Rs. 300 crore;
@2.00 % on the next Rs. 300 Crores; and @ 1.75% on the balance. Copy of SID/SAI and Key
Information Memorandum (KIM) can be obtained from all Investor Services Centers of
Pramerica Mutual Fund or can be downloaded from: www.pramericamf.com. Fund Managers:
Ravi Gopalakrishnan & Mahendra Jajoo.
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Risk Factors & Disclaimers: All mutual funds
and securities investments are subject to market risks and there can be no assurance
that the objectives of the Schemes will be achieved and the NAV of the funds may
go up or down depending upon the factors and forces affecting the securities markets.
Pramerica Dynamic Fund is only the name of the scheme and does not in any manner
indicate either the quality of the Scheme, the future prospects and returns.Performance
of the Sponsor has no bearing on the expected performance of the mutual fund or
any of its schemes. Past performance of the Sponsor and their Affiliates/AMC/Mutual
Fund & its Scheme(s) does not indicate the future performance of the Scheme(s) and
may not necessarily provide a basis of comparison with other investments. Investment
in Mutual Fund Units involves investment risks such as trading volumes, settlement
risk, liquidity risk, default risk including the possible loss of principal. As
the price / value / interest rates of the securities in which the scheme invests
fluctuate, the value of your investment in the Scheme may go up or down. Investors
are not being offered any guaranteed / assured returns under any scheme of Pramerica
Mutual Fund.
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Statutory Details: Pramerica Mutual Fund is set up as a
Trust under the Indian Trusts Act, 1882 and registered with SEBI. Sponsor:
Prudential Financial, Inc. of the United States of America [liability
restricted to initial contribution of Rs. 1 Lac towards the corpus of the Mutual
Fund]. [Pramerica is the brand name used by Prudential Financial, Inc. of the United
States and its affiliates in select countries outside of the United States. Prudential
Financial, Inc. (PFI) of the United States is not affiliated in any manner with
Prudential plc, a company incorporated in the United Kingdom.] Trustee:
Pramerica Trustees Private Limited Investment Manager: Pramerica
Asset Managers Private Limited.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, PLEASE READ ALL SCHEME
RELATED DOCUMENTS CAREFULLY.
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