Monday, January 12, 2009



Serenity in a single shot!

Balanced funds offer you the benefits of asset allocation, while investing in a single avenue. Moreover, in times of market volatility, well-managed balanced funds can have a calming influence on portfolios, thanks to the presence of the debt component. Now is a good time to put balanced funds under the scanner and evaluate their performance.

The gleaming gems listed below have proved their mettle time and again…..Four of the five funds listed in last year’s GEM GAZE have retained their envious position. DSP Blackrock Fund has made it to the list while Tata Balanced Fund, in view of its lacklustre performance, has made a quiet exit.

HDFC Prudence Fund Gem

Hale and Hearty

HDFC Prudence is a class act. It sprints like an equity fund but delivers the stability of a balanced fund. Continuity of the fund manager, unmatched returns and optimum stability make it the right fund for the long-term. Powered by an impressive track record across the risk and return parameters, the ICRA 5 star (3 years) award winning fund has often set the tone for its peers from the balanced funds segment. With net assets at Rs.2538.9 crores, the fund manager has consistently maintained an excellent blend of growth and value stocks which has been his key to success. Some of the contra calls made by the fund manager in sectors such as FMCG and Pharmaceuticals have paid off rich dividends. The fund manager sticks to his conviction in stock selection irrespective of market conditions and believes in long term investing. HDFC Prudence follows a more conservative approach and has stable holdings. While it has trailed its benchmark over the last year, it has, nevertheless, managed to contain losses better than indices such as the Sensex and the Nifty. HDFC Prudence has around 40 per cent of its portfolio in midcap (with less than Rs 7,500 crore market cap) stocks and has retained this proportion for over a year. This strategy worked well for the fund during last year’s market rally. The fund also invested in momentum sectors such as capital goods, banks and power. It does not indulge in heavy churning in sectors. But exposure to defensive sectors such as pharmaceuticals and consumer non-durables has seen an increase.

HDFC Prudence has all the right ingredients - an excellent performance history, below average risk and consistent returns. The fund merits inclusion in just about every risk-taking investor’s portfolio.

FT India Balanced Fund Gem

Forte and fortitude

Though the past one year has been far from promising with a dismal return of -ve 39.25%, the past month has turned the tide with a positive return of 3.21%. Even this one year negative return is better than the category average of 42.65%. The net assets as on 31 December, 2008 stand at Rs. 211.86 crores. The top ten holdings in the portfolio are companies with solid businesses. Debt forms 36% of the portfolio, with debentures of Rural Electrification Company at 7%, leading the entire portfolio. These priced possessions, it is hoped, will lead the recovery of the fund that temporarily suffered a mild jolt (like its peers) in the course of 2008.

It may not be the boldest balanced fund but it gets the job done. The focus is on stability and not extraordinary returns. A cautious investor, who prefers peace of mind over flashy returns should like this fund.

Magnum Balanced Fund Gem

Meandering about the median

Magnum Balanced Fund, an ICRA 7 star gold (3 years) award winner, has traditionally been a more aggressive fund within the balanced category, with relatively high equity exposures and several mid- and small-cap stocks among the equity holdings. The fund’s equity exposure, which hovered at 77 per cent levels in late 2007, has since declined and is now at 70 per cent. The fund has 39 stocks in its latest equity portfolio and the top ten account for 29 per cent of the assets. Close to 30 per cent of the assets were held in debt and cash. In its debt portfolio, it has invested primarily in high quality short-term papers mostly issued by the finance companies. Despite its tendency to invest in large-cap stocks, the fund’s higher exposure to equity pegs up its risk profile. This was reflected in the one year return of –ve 45.11% as against the category average of – ve 42.65%. But the one month return is an impressive 5.25% as against the category average of 3.68%. The fund's large equity exposure may make it unsuitable for the conservative investor, though the large-cap focus and diversified portfolio will go a long way in rationalising the risk. This will also provide steady rather than spectacular returns.

Magnum Balanced has both the pedigree and the rich history to warrant a place in any investor's portfolio.

Sundaram Balanced Fund Gem

Shining under the shade

This ICRA 5 star (1 year) winner has made an even more dramatic recovery from the -ve 42.89% over the past one year to 4.66% over the past one month. The one month return is a clear one percentage point higher than that of the category average. This is significant since its one year return almost equalled the category average (a little less). Though the tilt towards growth and largecap scrips and net assets of Rs. 28.64 crores with approximately 29% allocated to debt show the fund in a good light, the 12% holding of the NCDs of Unitech (top holding), a real estate company, is a cause for concern.

The scintillating performance (relative to its peers and the benchmark) shrouds the minor misgivings and qualifies it as a GEM.

DSP BlackRock Balanced Fund In

Disciplined and diversified

The fund has a propensity to hold a well-diversified equity portfolio and also a fair degree of consistency can be seen therein. The fund’s risk-averse nature is adequately highlighted in its debt portfolio as well; the latter is dominated by high rated instruments (AAA or equivalent) coupled with a low average maturity. The fund’s rigid adherence to its mandated debt-equity allocation despite being tested by rising equity markets deserves mention. Secondly, the fund’s stable fund management style and penchant for holding a well diversified portfolio (equity and debt) are noteworthy. The fund has been able to tactically shift between sectors in its equity portfolio. On the equity side, the fund generally holds a well-diversified stock portfolio comprising of stocks from across market segments. The fund, which had high exposures to IT and FMCG stocks, contained the downside better by scoring on stock selection and weights in defensive sectors. Similarly, on the debt side, the fund has allocations of close to 35% and largely steers clear of credit and interest rate risk. The fund has rightly taken exposure to short-term debt in order to gain from rallying interest rates.

With over a third of its assets in debt, the fund declined 22 per cent on a one-year basis. Exposure to debt has restricted the fund’s losses to about 50 per cent of the Sensex return (of -43 per cent). The fund’s three-year annualised return of 15 per cent is not only superior to its benchmark Crisil Balanced Fund index but also higher than the Sensex return. Over a six-month period, the fund declined about 19 per cent, 400 basis points more than its benchmark. The Sensex declined 33 per cent over this period.

DSP Blackrock Balanced Fund, with a strong and consistent track record, has weathered the earlier as well as the recent downturn reasonably well. A must in every investor’s portfolio.

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