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Analysis: The Dynamic Diversified Real Asset Fund is an interesting concept for an equity focused balanced fund. It is designed to protect investors against the threat of inflation by investing predominantly in a mix of securities that are exposed to real assets such as real estate, real return bonds, precious metals, energy and infrastructure.
It is managed by Michael McHugh using a top down approach. Mr. McHugh, in tandem with Dynamic’s chief economist, Dr. Martin Murenbeeld, evaluates the current economic and market conditions. Based on this analysis, Mr. McHugh determines the relative attractiveness of each of the five sectors mentioned above. The target weighting of each sector is 20%, however, based on the outlook, the target weights may range between 10% and 30%.
To gain the investment exposure, the manager will invest in other funds managed by Dynamic, specifically the Dynamic Precious Metals Fund, Dynamic Global Infrastructure Fund, Dynamic Strategic Energy Class, Dynamic Focus+ Resource Fund and Dynamic Global Real Estate. The fund will also hold fixed income investment directly.
Performance since the February 2009 market low has been strong, boasting a three year return in excess of 21%, outpacing the index and its peer group. In the past six months, however, the fund has taken a breather, largely due to the struggles of gold, which has dragged performance.
Volatility of the fund is high, particularly for a balanced fund. The monthly volatility is higher than the volatility for the S&P/TSX Composite Index. In fact, the fund is by far the most volatile balanced fund we follow (not including ABC Fully Managed, which is technically a pooled fund).
Given this risk profile, we do not feel that this fund is suitable as a core holding for most investors. In our opinion, it may be a good specialty holding for those investors seeking some protection against the impact of inflation. Given that many economists don’t envision a particularly robust inflationary environment in the near term, we expect that the short term performance may be particularly volatile. Longer term, investors worried over the potential impact of inflation may want to consider this fund for a small portion of their portfolio, given its diversified approach.