Dynamic asset allocation
The AMP Capital Dynamic Markets Fund uses active asset allocation to take advantages of opportunities we see arising from market mispricing. The Fund is actively managed in terms of asset allocation and currency hedging, with the flexibility to change the asset class mix and currency hedging level at any time within broad ranges.
The Fund provides investors with diversification by investing across a range of traditional asset classes such as shares, listed property, commodities, fixed income, credit and cash. The underlying asset class exposures within the Fund are achieved by investing in passively managed investments such as index funds and exchange traded funds (ETFs), and using derivatives.
Dynamic Asset Allocation (DAA) is used to actively adjust the split of investments across asset classes in response to expected market changes. For example, when markets have fallen, the Fund may favour growth assets such as shares, whereas when markets are peaking the Fund may favour more defensive assets such as fixed income and cash.
The illustration (figure 1) shows how the Fund can be flexible in altering its allocation to growth assets according to investor sentiment, which is one of the main drivers of the DAA process. Conversely, as there are signs of a recovery in share markets, the Fund can increase exposure to growth assets.