GEMGAZE
January 2012

Balance your portfolio with balanced funds

It is seldom that both debt and equity markets offer attractive buying opportunities to investors at the same time. We may be in just that situation now. As rising interest rates have resulted in 10 per cent-plus returns on safe 3-5 year debt options today, equity markets are in a free fall, offering buying opportunities to long term investors. Should you take the plunge into equities or opt for safe debt? You can do both, with good balanced funds as listed out in GEMGAZE.

All the GEMs in the January 2010 GEMGAZE have retained their preeminent position in the January 2011 GEMGAZE, thanks to their consistency and stability.

HDFC Prudence Fund Gem
Consistent Record holder…

HDFC Prudence has proved it mettle in beating pure equity funds over the long term, despite holding a fourth of its assets in debt. The assets under management of the fund stand at Rs. 6100 crore at present, equivalent to almost half of the category assets. The three and five-year compounded annualised return of 19% and 15% is superior to some of the top performing equity funds. The fund also outpaced its benchmark Crisil Balanced Index by a whopping 14 percentage points and eight percentage points respectively over the above time-frames. Financial services, technology, and energy are the top three sectors in the portfolio accounting for 29% of the total portfolio. 58% of the fund’s portfolio is in large caps. The fund has 74.24% in equity and 24.28% in debt. Though the fund sports a diversified equity portfolio of 80 stocks with none having an allocation of more than 5%, it is still an aggressive offering. HDFC Prudence returned -12.66% over a one-year period, ahead of the -13.84 % return of category. A SIP in HDFC Prudence over the last ten years would have yielded 26% compounded annual return — a feat very few equity-oriented funds have achieved over this period. Consistency is the name of game where HDFC Prudence is concerned. Of the total 16 years of its existence, the fund has just two annual under performances. A phenomenal record in fact! Despite being a balanced fund, it has outperformed Sensex and Nifty in 13 years. The expense ratio is 1.79% and the portfolio turnover ratio is 29.16%.

Sundaram Balanced Fund Gem
Safe haven…

Safe Over one-, three- and five-year time-frames, the fund has managed to better the performance of its benchmark – Crisil Balanced Index. On a five-year basis, Sundaram Balanced has managed to deliver compounded annual returns of 16.4% which though reasonable, does not place it among the top few funds in that category. But over the last three years, its performance has improved, and, over the last year, the fund has been among the top few funds in returns delivered. Sundaram Balanced has delivered better returns than the Crisil Balanced Index during market rallies. The fund, on an average, has 60-80% of its portfolio invested in equity, and the blend of mid- and large-cap stocks has enabled it participate well in most market rallies. The debt component of Sundaram Balanced comprises mainly of certificates of deposits in banks such as ICICI, BoB, Dena and the rest in government securities. There is no exposure to CBLOs (collateralised borrowing and lending obligations) or other risky corporate instruments, which means that the debt profile of the fund is less risky. This Rs 62 crore fund has earned a return of -18.47% over the past one year. The fixed income portion of the fund is largely invested in corporate bonds followed by government securities. The equity component accounts for 69.96% of the assets and is spread across the cap curve and sectors. The top three sectors, accounting for 52% of the portfolio, are financial services, technology, and energy. 78% of the portfolio is in large caps, a dramatic rise from 58% a year ago. The expense ratio of the fund is 2.49% while the portfolio turnover ratio is 31.4%.

DSPBR Balanced Fund Gem
Well diversified…

Over one-, three- and five-year time-frames, the fund has kept beating the returns of its benchmark, the Crisil Balanced Fund Index. The fund has delivered a compounded annual return of 20.9% over the past five years, which places it among the top few funds in its category. The fund tends to spread its risk quite thin, given that there are more than 80 stocks in the portfolio across market cycles. Even the top 10-20 stocks each have less than four per cent exposure. This apart, exposure even to individual sectors is not heavy either. No sector accounts for more than 10% of the portfolio. DSPBR Balanced has a fairly high quality debt exposure, with the fund restricting its exposure to AAA and AA+ rated instruments. The top three sectors of this Rs 685 crore fund are financial services, energy, and FMCG, contributing 26% to the portfolio. 71% of the fund’s portfolio is in equity and 27% in debt. 56% of the assets are in large caps. The one-year return of the fund is -14.64%. The expense ratio is 2.09% and the portfolio turnover ratio is 1.89%.

Reliance Regular Savings Balanced Fund Gem
Active stock picker…

An actively managed equity portfolio has enabled Reliance Regular Saving Balanced Fund to consistently be a top quartile performer. Returns of 24% and 13.1%, respectively, during the three- and five-year period reflects the fund's ability in stock selection. The fund has also outpaced its benchmark BSE 100 by six percentage points. The fund's Net Asset Value lost 21.8% during the last one year, against 17.2% shed by its benchmark BSE 100. The fund could have posted better returns had it increased its exposure to consumer sector stocks, many of which delivered superior returns even in the down market. Its shift to large-cap stocks too, did not help much this time, as many large-cap stocks have shed higher value than their mid-cap peers. These decisions, that caused underperformance in the short term, nevertheless appear to be prudent in a volatile market. The fund has not taken concentrated exposure in stocks. The top ten stocks accounted for 32% of the assets of nearly Rs 666 crore now. 73% of the portfolio is in equity and 51% is in largecaps. The top three sectors in the fund’s portfolio are healthcare, energy and financial, accounting for 33% of the total assets. Historically, the fund had a condensed portfolio of less than 20 stocks within the equity portfolio, with a turnover ratio of 155% and the expense ratio is 2.14%.

Canara Robeco Balanced Fund Gem
Raring to go…

Over a five-year period, Canara Balanced recorded a compounded annual return of 12.2% that places it among the mid-quartile of balanced funds. But over the last three years, the fund has moved into the top quartile of funds in its category. The fund invests in debt instruments to the tune of 25-35% of the portfolio, which shields it somewhat during market volatility. The choice in this segment too is relatively safe, with investments made predominantly in certificates of deposits and corporate debts of institutions such as HDFC, LIC Housing Finance, IOC and Indian Railway Finance Corporation. The one-year return of the fund is -8.2% as against the category average of -13.84%. 62% of the portfolio is in large caps with 32% of the portfolio in the top three sectors concentrated in finance, energy, and FMCG sectors. The expense ratio of this Rs 179 crore fund is high at 2.38% with a very high portfolio turnover ratio of 160%.