The best of both worlds
With the equity and debt markets on a roll, most balanced funds have performed well too. These funds enable investors to participate in the growth of various companies and balance the risk by investing the rest in a safe portfolio of debt.
By Gaurav Pai, TNN |
SBI Magnum Balanced Fund, HDFC Prudence and DSP Merrill Lynch Balanced were the top three balanced funds in the quarter ended September ’06, as per the latest version of the ET Quarterly MF Tracker.
They have bagged the ET Platinum fund rating for this quarter, having given the best risk-adjusted performance in the balanced funds category. In the past quarter, the equity market has been on a roll and the debt market has gained significantly due to the relative softening in interest rates.
As a result, most balanced funds have performed well. The benchmark BSE Sensex gained around 24% in the past quarter, and the 10-year sovereign bonds rallied as well. The yields on the 10-year G-secs, which had reached 8.4% by mid-July, receded to 7.63% by the end of September.
DSP Merrill Lynch Balanced is the only fund to have moved up from the position it occupied in the last quarter. While the fund has close to 73% of its assets allocated in equities, it has a ceiling of 75% for investment in equities. Fund manager Apoorva Shah says, “The fund has a good mix of large and mid-cap companies.
We will maintain the balance, but may incrementally look at adding to attractive mid caps, where the valuations are not commensurate with the growth prospects of the company.” \Technology (14%), FMCG (9%) and construction (6%) form the pillars of DSP ML’s equity strategy.
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Mr Shah likes to hold a lower duration portfolio in the fixed income portion and feels that currently, floating rate securities are most attractive. He feels that the relative performance of the fund has been driven principally by stock selection, followed by sector selection.SBI Magnum has invested around 66% in equities, with technology (17%), construction (12%) and energy (8%) being the mainstays of its portfolio. Fund manager Sanjay Sinha says, “The IT sector continues to show good traction with improved pricing environment and we are positive on the long-term growth prospects of the industry. The fund has a bias towards large caps. Balanced funds enable investors to participate in the growth of a diversified portfolio of high-growth companies and at the same time, balance risk by investing the rest in a relatively safe portfolio of debt.”
Among debt instruments, L&T Finance commercial paper accounts for 8.5% of assets, while non-convertible debentures and certificates of deposit comprise major part of the debt portfolio. HDFC Prudence has around 73% of its total corpus invested in equities.
Prashant Jain, CIO at HDFC Mutual, who is responsible for managing the fund, was unavailable for comment. This well-diversified fund is betting big on engineering, FMCG and automobiles, with all three sectors having allocations of 11-13% each.
Though Infosys was the highest equity holding, amounting to 5%, AIA Engineering, Crompton Greaves and Exide each comprised around 4% of the portfolio. Around two-third of the fund’s equity corpus is in mid caps and small caps. ICICI Bank’s certificate of deposit, HDFC Bank’s bills rediscounting and State Bank of Hyderabad’s certificate of deposit comprise the top three fixed income investments.
Top performers in terms of 12-month absolute returns were HDFC Prudence (one-year return of 32.3%), followed by DSP Balance (31%) and Kotak Balanced Unit (30.4%).
Though the outlook for equities is buoyant, expensive valuations make the environment for equities uncertain in the near term. With the RBI having left reverse repo rate, bank rate and cash reserve ratio (CRR) unchanged, the outlook on fixed income securities remains positive.
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