GEMGAZE

January 2016 

Balanced funds provide both equity advantage and debt cushion, along with automatic rebalancing, which have placed these funds in a sweet spot. If you are looking for equity-like returns in the long term, balanced funds have proven to deliver superior risk-adjusted returns and, hence, deserve a place in your portfolio. But if you already have an overall portfolio allocation in place, ensure that the fund does not distort the debt-equity equilibrium. Returns within the category itself are quite divergent, so pick a fund that shows consistency in returns and in asset allocation pattern. A fund that makes frequent sharp shifts might be counterproductive. Ultimately, your balanced fund needs to give high returns with low volatility.

All the GEMs from the 2015 GEMGAZE have performed reasonably well through thick and thin and figure prominently in the 2016 GEMGAZE too. 

HDFC Prudence Fund Gem

HDFC Prudence Fund is the largest fund in the category with assets amounting to Rs 8,586 crore. HDFC Prudence, with its long-standing track record of delivering 15.45% compounded annually over the last 10 years, towers over the category average of 11.34% annually over the same period. Over a three- and five-year period horizon, the fund returned an annualised 14.05% and 11.19%, respectively as against the category average returns of 13.59% and 9.99%, respectively, over the same period. The return of -2.33% in the past one year as against the category average of 1.90% might turn out to be a temporary lull. HDFC Prudence Fund has a diversified quality portfolio with a blend of growth and value and maintains over 70% (75.08% at present) equity allocation before rebalancing. The allocation to a single stock has been capped at around 6%, with the highest currently allocated to State Bank of India. There are 84 stocks in the portfolio and the top three sectors are finance, technology, and automobile, which constitute 33.86% of the portfolio. The portfolio turnover is 33% and it has one of the lowest expense ratios of 2.28% in the category. The fund is managed by Prashant Jain, an outstanding manager, who is at the helm in one of the best AMCs, which follows a robust process.

ICICI Prudential Balanced Fund Gem

ICICI Prudential Balanced Fund has earned a return of -0.8% over the past one year as against the category average of 1.9%. The three-year and five-year returns are also more than the category average of 13.59% and 9.99%, respectively at 16.37% and 14.15%, respectively. The fund has 78.76% of its portfolio invested in equity comprising 43 stocks. This Rs 2569 crore fund has 42.93% of the portfolio in the top three sectors, financial services, energy, and technology. The fund predominantly parks its money in large-caps. But the fund also times its mid-cap investments well, to boost its returns. For example, after a flaccid stock market performance in 2013, the fund was quick to catch on to the ensuing rally and delivered 45%, a good 6 percentage points higher than the category average. It has managed its sector allocation well. To cash in on the 2014 rally the fund increased its exposure in banks and capital goods while trimming its holdings in IT which underperformed the broader market indices. It gradually increased its exposure to long-term government bonds through 2014, raking in good gains from its debt portfolio. It has also managed to cap its losses by making the right calls during rate hike cycles. In the period between March 2010 and October 2011, when the RBI raised interest rates, the fund stayed away from gilts and instead invested in corporate debt, maintaining a low duration. The expense ratio of the fund is 2.38% while the portfolio turnover ratio is 40%. The fund is benchmarked against CRISIL Balanced Index. The fund managers are Yogesh Bhatt, Manish Banthia, and Sankaran Naren.

Tata Balanced Fund   Gem

The tightrope walk between safety and returns that a balanced fund has to perform is not straightforward, but Tata Balanced has consistently done this better than most of its peers. This fund has handsomely outperformed the benchmark as well as the category over the last ten years. Ten year returns have been 16.04%. This compares very well with the category average of 11.34%. The one-year return of this Rs 5381 crore fund is 5.36% as against the category average of 1.9%. Returns of 18.46% and 14.76% respectively, as against the category average of 13.59% and 9.99% during a three- and five-year period, reflects the fund's ability in stock selection. In terms of portfolio construction, equity comprises 74.17% of the portfolio mix, while fixed income securities comprise the rest. 34.11% of the portfolio is in the top three sectors, finance, construction, and healthcare. The fund has 73 stocks in the portfolio. This splintered approach reduces risks as the fund is not too reliant on its individual calls to score well in a rising market. But it can prevent outsize gains in a trending market too. The fixed income portion has high allocations to gilts and AAA-rated corporate bonds. Returns are managed through duration calls rather than credit risk. While most stocks in the portfolio are large-caps, the fund includes a good mix of mid- and small-cap stocks to spice up returns, depending on market conditions. In its debt portfolio, Tata Balanced Fund actively juggles between government securities, certificates of deposits and NCDs. For instance, it neatly rode the Gilt wave in 2014; government securities still account for the most weight at 18% of the portfolio. Corporate debt was on top in 2011 and 2013 when corporate interest rates were higher and bank credit began to wane. With interest rates now trending down, a longer-term debt portfolio bodes well. Debt investments are restricted to high-quality AAA, AA, A1 and A2. The portfolio turnover ratio of the fund is 14% and the expense ratio is 2.27%. The fund is managed by Mr Atul Bhole and Akhil Mittal.

Reliance Regular Savings Equity Fund   Gem

Reliance Regular Savings Equity Fund is an equity-oriented balanced fund with 68.8% in equity. The one-year return of this Rs 1834 crore fund is 5.11% as against the category average of 1.9%. Returns of 15.6% and 11.73% respectively, as against the category average of 13.59% and 9.99% during a three- and five-year period, reflects the fund's ability in stock selection. 37.04% of the portfolio is in the top three sectors, finance, automobile, and technology. The fund has a very compact portfolio of 42 stocks. The fund has a large cap bias with 78% of the portfolio accounted for by large cap companies. In the small and midcap segment, the fund managers try to identify companies with significant price value gap. In terms of sector allocation of the equity portfolio, the fund has a bias for cyclical sectors. The debt portion of the portfolio has a short to medium term maturity profile, keeping in mind the interest rate outlook. 50% of the debt portfolio has maturities of less than 5 years, 23% has maturity of 5 to 7 years, 12% has maturity of 7 to 10 years and the rest has maturities of more than 10 years. The credit quality of the fund portfolio is very high with 99% of the securities rated AAA. The portfolio turnover ratio of the fund is 54% and the expense ratio is 2.64%. The fund is managed by Mr. Amit Tripathi and Mr Sanjay Parekh.

Canara Robeco Balanced Fund Gem

Canara Robeco Balanced Fund is the oldest balanced fund that has exhibited smooth sailing across market cycles. The one-year return of the fund is 3.38% as against the category average of 1.9%. The fund’s three-year and five-year returns of 15.90% and 12.89% respectively are higher than the category average of 13.59% and 9.99% respectively. Canara Robeco Balanced Fund puts in around 74.03% of its portfolio into equities, with 65 stocks in the portfolio. 32.92% of the portfolio is in the top three sectors, concentrated in finance, energy, and construction sectors. The good performance of Canara Robeco Balance across market cycles is attributable to its bias towards safety and stability. This is reflected in the significant proportion of large-cap stocks in its portfolio. Currently, large-caps account for more than 40% of the portfolio. This is not to say that the fund does not take risks for better returns; the share of small and mid-caps in its portfolio has risen from about 20% last August to 33% currently. On its debt investments, which have accounted for a quarter of the portfolio, Canara Robeco plays it safe. The chunk is generally in corporate debentures rated AA or above. Last month, the fund shifted a big portion to government securities, which now form more than half the debt portfolio. The expense ratio of this Rs 460 crore fund is 2.8% with a portfolio turnover ratio of 88%. The fund is managed by Mr. Avnish Jain and Mr Krishna Sanghvi.