Stock markets go through volatile phase every now and then. At such times a dynamic asset allocation strategy could help investors tide over volatility and generate better returns. A balanced advantage fund aims to do just that.
With a long track record of over 25 years and an AUM of over Rs 43,000 crore, HDFC Balanced Advantage Fund (erstwhile HDFC Prudence Fund) is one of the most popular funds in the Balanced Advantage Funds category.
As per SEBI mandates, balanced advantage funds can manage their allocation in equity and debt dynamically. While the equity component helps in appreciation of wealth, the debt component intends to provide an element of stability to the portfolio.
Even though the fund now has the flexibility of dynamic asset allocation with effect from June 2018, its allocation strategy remains similar to its former category.
Mr Prashant Jain has been the manager of the scheme since inception, along with Mr Amar Kalkrundikar (Overseas investments) since January 10, 2019.
In this brief analysis, we take a close look at the features and performance of HDFC Balance Advantage Fund.
Investment objective of HDFC Balanced Advantage Fund
The investment objective of the scheme is to provide long-term capital appreciation/income from a dynamic mix of equity and debt investments.
Fund Facts HDFC Balanced Advantage Fund
|Category||Balanced Advantage Fund||Style||Growth|
|Type||Open ended||Market Cap Bias||Large cap|
|Launch Date||01-Feb-1994||SI Return (CAGR)||18.25%|
|Corpus (Cr)||Rs 43,168||Min. /Add. Inv.||Rs 5,000 / Rs 1,000|
|Expense Ratio (Dir/Reg)||1.19% / 1.59%||Exit Load||1%|
Portfolio Data as on June 30, 2019.
SI Return as on July 31, 2019.
(Source: ACE MF)
Growth Of Rs 10,000, If Invested In HDFC Balanced Advantage Fund 5 Years Ago
Data as on July 31, 2019
(Source: ACE MF)
Had you invested Rs 10,000 in HDFC Balanced Advantage Fund five years back on July 31, 2014, it would have grown to Rs 16,753. This translates into compounded annualised growth rate of 10.87%.
In comparison a simultaneous investment of Rs 10,000 in CRISIL Hybrid 35+65 – Aggressive Index would now be worth Rs 15,871 (a CAGR of 9.68%). As can be seen in the chart above, the fund was able to generate alpha over CRISIL Hybrid 35+65 – Aggressive Index from 2017 onwards and it still continues, while it lagged in the year 2015-16. In the remaining years its performance was nearly in line with the index.
HDFC Balanced Advantage Fund: Year-on-Year Performance
YTD as on July 31, 2019
(Source: ACE MF)
Launched in the year 1994, HDFC Balanced Advantage Fund has a track record of over 25 years. The year-on-year performance comparison of the scheme vis-à-vis CRISIL Hybrid 35+65 Aggressive Index shows that the fund has outperformed the index in 4 out of last 8 calendar years. It managed to generate alpha in CY 2012, 2014, 2016 and 2017, with the majority of it being during the market rally of 2014. In CY 2015 and 2018 the fund gave negative returns even as the index generated positive returns. It also performed poorly in CY 2013 and failed to manage the downside in CY 2011.
In the current year the fund is showing slight underperformance when compared to CRISIL Hybrid 35+65 Aggressive Index.
HDFC Balanced Advantage Fund: Performance vis-à-vis category peers
|Scheme name||Corpus (Cr.)||1-year (%)||2-year (%)||3-year (%)||5-year (%)||Std Dev||Sharpe|
|HDFC Balanced Advantage Fund||43,168||4.38||9.38||13.31||16.34||11.44||0.12|
|Reliance Balanced Advantage Fund||2,040||5.09||9.89||12.25||14.12||9.44||0.11|
|Aditya Birla SL Balanced Advantage Fund||2,766||4.00||7.17||12.11||12.89||6.02||0.06|
|ICICI Pru Balanced Advantage Fund||28,709||5.69||9.46||11.31||13.78||5.66||0.10|
|Edelweiss Balanced Advantage Fund||1,450||5.03||9.76||9.10||11.64||8.21||0.04|
|Principal Balanced Advantage Fund||214||5.27||7.37||8.54||11.64||4.08||-0.07|
|CRISIL Hybrid 35+65 – Aggressive Index||5.73||10.04||11.78||12.73||8.11||0.10|
Returns are on a rolling basis and in %, calculated using Direct Plan –
Growth option. Those depicted over 1-Yr are compounded annualised.
(Data as on July 31, 2019)
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
HDFC Balanced Advantage Fund underperformed CRISIL Hybrid 35+65 Aggressive Index in 1-year and 2-year rolling period. However, over 3-year and 5-year rolling return periods, the fund outperformed the index with a decent margin. It managed to beat average category returns across rolling periods, except 1-year rolling period.
In terms of risk-return parameters, the fund undertakes the highest risk as compared to category peers and index. However, its risk-adjusted return is among the best.
The fund was also the top performer on a 3-year and 5-year rolling period. The other top performers in the 3-year rolling period included Reliance Balanced Advantage Fund and Aditya Birla SL Balanced Advantage Fund.
Investment Strategy of HDFC Balanced Advantage Fund
The fund’s investment objective is to provide long-term capital appreciation/income from a mix of equity and debt investments. The fund manager determines asset allocation between equity and debt depending on prevailing market and economic conditions.
The aim of equity strategy is to build a portfolio of companies diversified across major industries, economic sectors and market capitalisations that offer an acceptable risk-reward balance.
Investment in debt securities is guided by credit quality, liquidity, interest rates and their outlook.
The debt-equity mix at any point of time is a function of interest rates, equity valuations, medium to long-term outlook of asset classes and risk management etc.
HDFC Balanced Advantage Fund Portfolio Allocation And Market Capitalisation Trend
Holdings (in %) as on June 30,
(Source: ACE MF)
The fund has the flexibility to dynamically manage equity and debt mix. It however, prefers to keep an equity bias. HDFC Balanced Advantage Fund holds 75-85% of its portfolio in equities. The exposure to large-caps is in the range of 60-70%, while the allocation towards mid and small-caps is 5-10% each. The fund maintains 15-25% of its portfolio in cash and debt instruments.
HDFC Balanced Advantage Fund Top Portfolio Holdings
Holdings (in %) as on June 30, 2019
(Source: ACE MF)
Being a large sized fund, HDFC Balanced Advantage Fund has 67 stocks in its portfolio diversified across various sectors. The top 10 stocks constitute 52.2% holding of the portfolio. State Bank of India has the highest allocation at 9.8% followed by ICICI Bank with an allocation of 9.4%. Infosys (7.8%) and Larsen & Toubro (7%) follow closely behind. The other stocks in the top 10 portfolio have an allocation of 2-4%, each.
In terms of sector wise holdings, a quarter of the fund’s portfolio is exposed to Bank. This is followed by Infotech, Engineering and Power with an allocation of around 9% each. Petroleum products are the next in the list with an exposure of 6%.
Investments in debt securities predominantly include corporate debts of banks having moderate to high credit ratings.
Among the stocks in the portfolio, ICICI Bank contributed the most to gains of the portfolio in the last one year with a portfolio return of 3.4%. State Bank of India and Larsen & Toubro were the other top contributors adding 1.8% and 1.2%, respectively to the funds return.
The stocks that eroded portfolio gains the most were GAIL (India), Vedanta, Vijaya Bank, Bank of Baroda and Apollo Tyres.
Suitability of HDFC Balanced Advantage Fund
HDFC Balance Advantage Fund is suitable for investors looking for capital appreciation along with some amount of stability by investing in a mix of equity and debt. The fund maintains an equity allocation of over 65% to be qualified as an equity scheme.
The scheme has a large-cap bias, but it also looks for opportunities in the small and mid-cap space. Debt investments are mainly in top quality corporate debts to reduce credit risk. Thus, the fund carries moderately high risk and suitable for an investment horizon of 3 years or more.
The fund has one of the largest asset sizes and this can hamper its agility. However, it has an able fund manager at helm who has been managing such a strategy for more than 25 years.
Though the fund’s performance in shorter time horizon has not been impressive enough, it has rewarded investors over longer time periods.
The scheme is well-diversified across sectors which can help in reducing the volatility and the risk involved. However, one should weigh all the options and make a prudent choice while investing in mutual funds.
Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor.