Baroda Dynamic Equity Fund(An open ended dynamic asset allocation fund)

Market Outlook

➢ Stock markets continue to rally with BSE Sensex registering gains of another 1.2% during the month. Market rally

was led by government intent to carry out labour reforms, cabinet approval of stake sale in a few PSUs and some

optimism in US-China trade talks.

➢ IIP declined by 4.3% during the month of Sept 2019. The weak IIP print when seen in conjunction with contracting

GST collections, negative diesel consumption growth and lower credit growth indicated a sharp loss of economic

momentum.

➢ Retail inflation(CPI) recorded its fourth consecutive increase in Oct 2019 with rising food prices as the primary

driver of increase in inflation.

➢ Increased liquidity due to restart of quantitative easing by global central banks also led to rally. Domestically, macro

data was quite negative with both IIP series and GDP data disappointing.

➢ While markets have rallied by 13% during the year, it is interesting to note that it continues to underperform US and

European markets significantly. While markets have rallied led by liquidity, macro data continues to disappoint.

➢ With FPIs turning net sellers, near term pause or correction is not ruled out. We remain constructive on Indian

equities on medium to long term horizon.

Source: Bloomberg, The Economic Times

Data as on30th Nov’19

➢ Markets & asset classes do not move in tandem, There are a different set of Winners & Losers each year .

➢ Investing in different assets classes reduces portfolio volatility as the impact of the poor performance of one asset class is

mitigated by the good performance in another asset class.

➢ Diversification is the key - An optimal mix of asset classes in the right proportion would help mitigate the risk .

➢ Disciplined Asset allocation helps in capturing opportunities as the performance cycle shifts from one market or asset class to

another.

➢ Allocation in the right asset class is a key determinant for portfolio performance over the long run.

Asset Allocation: Diversification to reduce Risk

Source : ACE MF; Economic Times

Data : MFs that have completed 10 years have been used to calculate category average.

Past performance is no guarantee of future results.

Asset allocation v/s Market timing

➢ Research has shown that as a factor, asset allocation ranks high in determining the performance of investment portfolio.

More than 91.5% of a portfolio’s return is attributable to its mix of asset classes; 4.6% stock selection & 2.4% market timing

of a diversified portfolio’s return.

➢ Asset allocation plays a key role in determining portfolio performance rather than market timing. The objective is to benefit

from the fact that factors that determine the performance of equities and debt are not perfectly correlated and this helps to

optimize risk-adjusted returns.

➢ For those investors investing in Equities for the first time or those who do not have time / resources to keep a track of

economy / market, Dynamic Equity Funds offer an efficient investment solution.

➢ Asset allocation is an Art and a Science & the correct mix is the heart of Financial Success.

Source : cfainstitute.org

Introducing Baroda Dynamic Equity Fund …

This fund is suitable for investors seeking :

• Capital appreciation over medium to long term

• A portfolio with a blend of equity & equity linked securities & debt & money market instruments while managing risk

through active asset allocation

• An open-ended dynamic asset allocation fund which invests in equity & equity related instruments with the primary aim

to generate capital appreciation & secondary objective to generate income through investments in debt and money

market instruments. It also aims to manage risk through active asset allocation.

• The Proprietary Model uses 10 year back tested data to evaluate the asset allocation. The model comprises of multi

parameters in order to arrive at the equity allocation

• The portfolio is constructed based on top down as well as bottom up approach

using GARP philosophy (Growth At Reasonable Price)

• Capitalizing on the Pricing anomalies through Arbitrage Strategies & Derivatives

• Exposure to high Quality Fixed Income instruments to maintain liquidity

• Gross equity exposure will be maintained between 65% to 100% and the net

long equity exposure will be between 30% to 100%.

• Derivatives include Arbitrage allocation ; Investment in units issued by REITs

and InvITs upto 10%. Investment in securitized debt will not exceed 10%

Baroda Dynamic Equity - Proprietary Model

• These 4 parametershave been compared to their historical 5 yr averages.

• The gross equity exposure is maintained in the range of 65% - 100% while the net equity exposure is maintained between 30% - 100%.

▪ The difference between gross and net variation is invested in Arbitrage / Arbitrage equity mutual funds. The exposure to Debt &

Money Market Instruments including cash and cash equivalents ismaintained in the range of 0% - 35%.

Why Baroda Dynamic Equity Fund?

• The investments are made in equity, arbitrage and debt instruments which provides return upside from net equity and safety

and stability of both return and capital from arbitrage and debt portion.

• The asset allocation is done based on the model which is objective and without human intervention.

• Model ensures no emotional bias in asset allocation.

• Model captures all aspects of a business viz. PL account through PE, balance sheet strength through PB, cashflow strength

from dividend yield and macro economic factors through G-sec & Earnings yield.

• Model is based on trailing/actual financials and numbers, so there are no ambiguity or hope stories.

• Experienced fund management and research team in both equity and debt.

DEF Model* Back Tested: Empirical Evidence

Probability of Outperformance increases over longer investment horizon

Source : Internal Research and Bloomberg

The Daily rolling returns are based on data from 2008-2018. Data is as on 25th September, 2018 and is not extrapolated to the current date, since

actual portfolio of the scheme is available for reference.

The above is only an empirical study to explain functioning of the model used for the scheme and is for illustration purposes only. The returns are

based on back tested values & are not an indicator for future returns of the scheme.

Past performance is no guarantee for future return.

* DEF Model : Baroda Dynamic Equity Fund Model

Source: Internal research, Bloomberg.Disclaimer: The data of the model is as per our back-tested internal calculation. This is an illustration to highlight the functioning of the model.

• The model has increased / decreased its equity exposure based on the market movements in the past decade.

• The average equity exposure that the model maintained during this period was 61.2% & the minimum equity exposure was

30.7% in Aug’18 & maximum equity exposure was 95% in Mar’09.

Past performance is no guarantee for future return.

Data period – 3rd April’08 – 25th October ’18. Data is not extrapolated to the current date, since actual portfolio of the scheme is available for

reference.

Proprietary Model's Dynamic Equity Allocation

Decreased equity allocation due to sharp mkt. upward

correction Decreased equity allocation due to sharp upward market correction

Average : 61.2%

Max : 95%

Min : 30.7%

Baroda Dynamic Equity Fund – Asset Allocation

(Data As on 31/10/19)

▪ The fund was launched in Nov’18 & had 65.71% equity exposure, which has been pruned down to 58.66% in Nov’19, based on the

Proprietary Model’s allocation, which has been dynamically managed based on the Model’s outcome & is rebalanced each month.

• Alpha generation is done through equity exposure and not by cash management

Source : Factsheet

Baroda Dynamic Equity Fund - Current Positioning

Data as on 30th Nov’19

Baroda Dynamic Equity Fund - Current Positioning

Data as on 30th Nov’19

Maruti Suzuki India

United Spirits

Tata Steel

Jindal Steel & Power

Sun Pharma

Tata Motors DVR

Hindalco Industries

ITC

GAIL

LIC Housing Finance

What’s In

What’s Out *

Top 10 Holdings

Nov’19

• The fund has maintained a Large cap bias (avg - 57%) & has had a limited exposure in Mid cap (avg - 8%) since inception, however,

this maybe changed given the market dynamics.

• The fund’s portfolio consists of an average of 35-40 stocks .

• A Top-down approach is considered for sector allocation & bottom-up approach is followed for stock picking.

Company Name % Exposure

Housing Development

Finance Corporation Ltd.6.25

Reliance Industries Ltd. 5.51

HDFC Bank Ltd. 4.61

ICICI Bank Ltd. 4.40

Infosys Ltd. 3.07

State Bank of India 2.77

Bajaj Finance Ltd. 2.65

Indraprastha Gas Ltd. 2.28

Kotak Mahindra Bank Ltd. 2.18

Nestle India Ltd. 2.13

* The above list of scrips is based on a comparison of the portfolios of the scheme, as on October 31, 2019 and November 30, 2019.

Top Over weight Sectors: Top Under weight Sectors:

✓ Financials * Healthcare

✓ Energy * Automobile

✓ Technology * Services

✓ Construction

✓ FMCG

✓ Chemicals

Source: Value Research

Data as on 30th Nov’19

Baroda Dynamic Equity Fund – Equity Positioning

* YES Bank NCD

Source: Value Research

Data as on 30th Nov’19

• The fund has preferred to stayed invested in AAA rated papers rather than hold a high cash exposure

like its peers

• The fund has been conservative in nature v/s its peers & has a marginal exposure to A rated & below

papers* compared to 10.5% by its peers.

Baroda Dynamic Equity Fund – Debt Positioning

Disclaimer

In the preparation of the material contained in this document, Baroda Asset Management India Ltd. (“AMC”) has used

information that is publicly available, including information developed in-house. The AMC, however, does not warrant the

accuracy, reasonableness and/or completeness of any information. This document may contain statements/opinions/

recommendations, which contain words, or phrases such as “expect”, “believe” and similar expressions or variations of such

expressions that are “forward looking statements”. Actual results may differ materially from those suggested by the forward

looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to

market risks, general economic and political conditions in India and other countries globally, which have an impact on our

investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign

exchange rates, equity prices or other rates or prices, etc. The AMC (including its affiliates), Baroda Mutual Fund (“Mutual

Fund”), its sponsor / trustee and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of

any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any

way arising from the use of this document in any manner. The recipient alone shall be fully responsible / liable for any decision taken

based on this document. All figures and other data given in this document are dated and may or may not be relevant at a

future date. Prospective investors are therefore advised to consult their own legal, tax and financial advisors to determine

possible tax, legal and other financial implication or consequence of subscribing to the units of the schemes of Baroda

Mutual Fund. Past performance may or may not be sustained in the future. Please refer to the Scheme Information Document

of the schemes before investing for details of the scheme including investment objective, asset allocation pattern, investment

strategy, risk factorsand taxation.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.