Think equities are overvalued? Consider investing in a balanced advantage fund

The equity market has been experiencing a strong rally, leading many investors to believe it has become overvalued and that a correction is imminent.

- Sudipta Mitu

For such investors, balanced advantage funds (BAFs) are a suitable investment option.

How Do BAFs Work?

Fund managers of BAFs typically employ a counter-cyclical strategy. They use valuation metrics such as price-to-earnings, priceto-book value, dividend yield, etc. to decide equity allocation. As the market becomes more expensive, they reduce equity exposure, and as it becomes cheaper, they increase it. This buy-low, sell-high approach allows BAFs to deliver decent risk-adjusted returns over the long term.

All-weather funds