Monday, January 13, 2014


January 2014

The perfect balancing act

Balanced funds are good investment options during volatile market conditions because of their well-defined asset allocation approach that not only protects investors from downside but also preserves much of the upside, thereby, serving investors well.

All the GEMs from the 2013 GEMGAZE, save DSPBR Balanced Fund, have performed reasonably well in the past one year and figure prominently in the 2014 GEMGAZE too. DSPBR Balanced Fund, which has been floundering over the past few years, has been shown the exit door.

HDFC Prudence Fund Gem

The top performer, by a wide margin, HDFC Prudence Fund, is also the largest fund in the category with assets amounting to Rs 5,201 crore. It is the best performing fund in the category over the past 10 years with annualised returns of 24.5%. In its 18-year history, this fund has outperformed the Sensex and Nifty on 14 occasions and in many years has outperformed some of the best performing diversified equity funds. The top three sectors are finance, technology, and automobile, which constitute 37% of the portfolio. Though the return of -1.08% in the past one year as against the category average of 3.64% is disheartening, the 10.59% in the past three months as against the category average of 5.3% is a positive sign. HDFC Prudence Fund has a diversified quality portfolio with a blend of growth and value and maintains over 70% equity allocation before rebalancing. The allocation is maintained irrespective of the market; for instance, even in 2008, the fund maintained high equity allocation. The high mid-cap allocation does have its pitfalls with the fund's performance dropping during market downturns. But, the fund manager increases the exposure to large-cap stocks at such times, which has helped check the falls in a better way; as was evident in 2011. As for the exact equity-debt balance mix, the fund manager looks into the prevailing interest rates, equity valuations, reserves position, need for capital preservation and the need to generate capital appreciation. The allocation to a single stock has been capped at around 6%, with the highest currently allocated to ICICI Bank. A consistent outperformer, the portfolio turnover is 34% and it has the lowest expense ratio of 2.25% in the category, making it a compelling pick.

Sundaram Balanced Fund Gem

Sundaram Balanced Fund has earned a return of 0.81% over the past one year as against the category average of 3.64%. The three-year and five-year returns are also less than the category average of 4.92% and 15.83% respectively at 1.52% and 14.08%. The fund has 68% of its portfolio invested in equity, and the large-cap orientation of the fund with nearly 75% has enabled it to impart the much-needed safety to the portfolio in the midst of a volatile market. The debt component of Sundaram Balanced Fund comprises mainly of bonds and debentures. The equity component of the portfolio comprises of 33 stocks. This Rs 36 crore fund has 38% of the portfolio in the top three sectors, financial services, technology, and energy. The expense ratio of the fund is 2.97% while the portfolio turnover ratio is 29%.

Reliance Regular Savings Equity Fund Gem

Reliance Regular Savings Equity has the flexibility to capitalise on market trends in volatile situations and a higher allocation to mid-cap stocks. The fund has no market capitalisation or sector bias. For instance, during bull runs, the fund will take aggressive sector bets and during bear phases, it will hold on to defensive stocks, diversify and use cash to hedge risk. This fund carries above average risk and is not for those who want a stable core portfolio investment. The fund is an equity-oriented balanced scheme and has managed to beat its benchmark – Crisil Balanced — over one-, three- and five-year timeframes. The level of outperformance has been to the tune of 5-8 percentage points. Over the last five years, the fund has delivered compounded annual returns of 12.1%, placing it among the top few funds in its category. The one-year return of this Rs 550 crore fund is -5.10% as against the category average of 0.5%. Returns of 1.23% and 19.65%, respectively, as against the category average of 2.48% and 19.19% during a three- and five-year period, reflects the fund's ability in stock selection. 36% of the portfolio is in the top three sectors, finance, technology, and automobiles. The fund has a very compact portfolio of 36 stocks, and has in recent times been more aggressive in churning its portfolio with a portfolio turnover ratio of 35%. The expense ratio is 2.86 %. The fund is managed by Mr Omprakash Kuckian since November 2007.

Canara Robeco Balanced Fund Gem

Canara Robeco Balanced Fund is by far the most consistent performer in the balanced fund category. It beat its benchmark 97% of the times on a one-year rolling return basis over the last three years. The fund also comfortably beat the large-cap equity fund average of 3% and 5% in the last three and five years respectively, thanks to a better performing debt market. The fund’s debt portfolio is reasonably liquid, what with 15% of its total assets in money market instruments. Another 15% is held in public sector and private company bonds. The one-year return of the fund is 2.01% as against the category average of 3.64%. 37% of the portfolio is in the top three sectors concentrated in finance, technology, and FMCG sectors. The expense ratio of this Rs 194 crore fund is 2.76% with a very high portfolio turnover ratio of 49%. The fund’s management changed hands and is now managed by Krishna Sanghavi and Suman Prasad. It was earlier managed by Soumendra Nath Lahiri.

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