Aggressive Hybrid Funds aim to tactically allocate exposure across asset class i.e. equity and debt. As per SEBI mandate, Aggressive Hybrid Funds can invest 65-80% of its assets in equity and equity related instruments and 20-35% of its asset in debt instruments.

SBI Equity Hybrid Fund is one such scheme that is classified under Aggressive Hybrid Funds. Earlier known as SBI Magnum Balanced Fund, it always maintained a higher equity allocation of about 70% along with the remaining in debt. Hence there was no significant change in its fundamental attributes, post implementation of SEBI recategorisation norms.

Launched in December 1995, the fund has the highest corpus in the category. It is co-managed by Mr Rama Iyer Srinivasan – Equity portion and Mr Dinesh Ahuja – Debt portion, since January 2012.

In this brief analysis, we take a close look at the features and performance of SBI Equity Hybrid Fund.

Investment objective of SBI Equity Hybrid Fund

The investment objective of the scheme is to provide long-term capital appreciation along with the liquidity of an open-ended scheme, by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in fixed income securities.

Table 1: Fund Facts SBI Equity Hybrid Fund

Category Aggressive Hybrid Fund Style Growth
Type Open ended Market Cap Bias Large cap
Launch Date 31-Dec-95 SI Return (CAGR) 15.69%
Corpus (Cr) Rs 29,408 Min. /Add. Inv. Rs 1,000 / Rs 1,000
Expense Ratio (Dir/Reg) 1.09% / 1.65% Exit Load 1%

Portfolio Data as on July 31, 2019.
SI Return as on August 14, 2019.
(Source: ACE MF)

Graph 1: Growth Of Rs 10,000, If Invested In SBI Equity Hybrid Fund 5 Years Ago

Growth Of Rs 10,000, If Invested In SBI Equity Hybrid Fund 5 Years Ago

Data as on August 14, 2019
(Source: ACE MF)

If you had invested Rs 10,000 in SBI Equity Hybrid Equity Fund five years back on August 13, 2014, it would have grown to Rs 17,798. This translates into compounded annualised growth rate of 12.22%. In comparison a simultaneous investment of Rs 10,000 in its benchmark CRISIL Hybrid 35+65 – Aggressive Index would now be worth Rs 15,733 (a CAGR of 9.49%). As can be seen in the chart above, the fund managed to generate significant lead over the index in the last five year period.

Graph 2: SBI Equity Hybrid Fund: Year-on-Year Performance

SBI Equity Hybrid Fund: Year-on-Year Performance

YTD as on August 14, 2019
(Source: ACE MF)

Launched in December 1995, SBI Equity Hybrid Fund has a track record of over 23 years. The year-on-year performance comparison of the scheme vis-a-vis its benchmark CRISIL Hybrid 35+65 Aggressive Index shows that the fund has outperformed the index in 5 out of last 8 calendar years.

It managed to generate decent alpha in CY 2012, 2013, 2014, 2015 and 2017. In CY 2014 it outperformed the benchmark with an impressive 14 percentage points. However, the fund failed to manage downside risk in CY 2011 and performed poorly in CY 2016 and CY 2018. In the current calendar year the fund has outpaced the benchmark, while many of its peers are struggling to keep pace with the benchmark.

Table 2: SBI Equity Hybrid Fund: Performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1-year (%) 2-year (%) 3-year (%) 5-year (%) Std Dev Sharpe
Principal Hybrid Equity Fund 1,600 2.39 12.61 15.91 16.13 10.39 0.11
Mirae Asset Hybrid – Equity Fund 2,297 7.20 12.47 14.99 NA 9.46 0.15
ICICI Pru Equity & Debt Fund 24,312 4.12 9.68 13.90 16.58 9.39 0.10
Sundaram Equity Hybrid Fund 1,721 7.06 10.72 13.04 11.71 8.55 0.08
HDFC Hybrid Equity Fund(Adjusted) 21,151 2.71 9.30 12.79 16.88 9.12 0.11
Canara Rob Equity Hybrid Fund 2,298 5.83 10.56 12.64 15.94 9.01 0.09
SBI Equity Hybrid Fund 29,408 5.16 10.83 11.88 16.27 9.23 0.09
DSP Equity & Bond Fund 5,915 1.51 7.56 11.57 15.76 11.43 0.04
Reliance Equity Hybrid Fund 9,814 -0.90 8.44 11.37 15.68 11.07 0.00
Aditya Birla SL Equity Hybrid ’95 Fund 11,790 -0.61 6.72 10.77 15.31 9.74 -0.02
Kotak Equity Hybrid Fund 1,432 0.44 6.14 10.76 NA 10.3 0.02
L&T Hybrid Equity Fund 8,397 -0.44 7.63 10.59 15.92 9.92 0.01
UTI Hybrid Equity Fund 5,140 -0.91 6.50 10.25 12.25 9.58 -0.03
Baroda Hybrid Equity Fund 566 -1.48 7.09 10.21 11.92 10.69 -0.02
Franklin India Equity Hybrid Fund 1,838 3.20 7.84 10.17 15.44 8.28 -0.01
Edelweiss Aggressive Hybrid Fund 6 3.98 8.83 9.57 12.93 9.85 0.01
Quant Absolute Fund 3 3.27 8.12 9.55 14.75 10.60 0.01
Shriram Hybrid Equity Fund 57 3.89 8.29 9.49 9.86 9.23 0.00
LIC MF Equity Hybrid Fund 358 3.83 6.38 8.81 9.39 10.56 0.01
Tata Hybrid Equity Fund 4,342 2.19 6.15 8.58 14.52 9.48 -0.03
CRISIL Hybrid 35+65 – Aggressive Index 5.41 9.73 11.70 12.51 7.9 0.0

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 August 14, 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.

SBI Equity Hybrid Fund has shown a stellar performance across time periods and has outperformed many of its peers in the aggressive hybrid funds category. It managed to beat the benchmark in 2-year, 3-year and 5-year rolling period, while its performance over 1-year rolling period is nearly in line with the index.

The fund has found place among the top 5 performers across rolling period, except 3-year rolling periods, where its peers Principal Hybrid Equity FundMirae Asset Hybrid – Equity Fund and ICICI Pru Equity & Debt Fund ended as top category performers.

In terms of risk-reward parameters, SBI Equity Hybrid Fund undertook relatively lower risk and managed to deliver better risk-adjusted returns compared to most other prominent schemes.

Investment Strategy of SBI Equity Hybrid Fund

Being an aggressive hybrid fund, SBI Equity Hybrid Fund can invest 65-80% of its assets in equity and equity related schemes, while debt allocation can form 20-35% of the holdings. It holds a diversified portfolio of equities of high growth companies and balances the risk through investing the rest in fixed income securities.

The fund manager follows bottom-up approach to stock-picking and is selective while choosing companies for the portfolio. Having exposure across market caps, the fund’s large-cap bias enables it to manage market downturn while the mid and small-caps aid in providing higher returns during market rally.

On the debt front, the fund has the flexibility to invest in the entire range of debt instruments. The portfolio is diversified across moderate to high rated instruments of medium to longer maturity. The average maturity and duration of its portfolio is usually in the range of 3 to 7 years, and is based on the fund manager’s outlook on the macros and direction of interest rate.

The fund may also invest in equity derivatives, foreign securities and units of Real Estate Investment Trust (REITs) & Infrastructure Investment Trust (InvIT).

Graph 3: SBI Equity Hybrid Fund Portfolio Allocation And Market Capitalisation Trend

SBI Equity Hybrid Fund Portfolio Allocation And Market Capitalisation Trend

Holdings (in %) as on July 31, 2019
(Source: ACE MF)

Following a Multi cap approach SBI Equity Hybrid Fund holds flexibility to move the equity portion of its portfolio across market caps. However it has remained biased towards large caps. The fund’s equity allocation is usually in the range of 65-70%.

Over the last one year, the fund increased its allocation towards large-caps, while the allocation towards mid and small-caps was reduced. This can be attributed to the high volatility witnessed in the values of mid and small-cap stocks in the past one year.

Large-cap exposure of the fund is in the range of 40-55%. Mid-cap allocation range is 6-13% and that of small-cap is 6-14%. The fund maintains 30-35% of its holdings in cash and debt instruments. Debt instruments mainly include high quality corporate debt and government securities.

Graph 4: SBI Equity Hybrid Fund Top Portfolio Holdings

Holdings (in %) as on July 31, 2019
(Source: ACE MF)

As on July 31, 2019, SBI Equity Hybrid Fund held 51 stocks in its portfolio diversified across various sectors. The top 10 stocks constitute 35% holdings of the portfolio and mainly include stocks in the banking & finance sector. HDFC Bank is the top holding in the portfolio with an allocation of 6.9%, followed by State Bank of India and Kotak Mahindra Bank with an allocation of 5.0% and 4.1%, respectively. Infosys (3.6%), Bharti Airtel (3.1%) and Bajaj Finance (2.8%) follow closely behind.

In terms of sector wise holdings, the fund has the highest exposure to Banks at 19.2%. Finance, Infotech, and Consumer non-durables follow behind with an allocation of around 6% to 10%. Petroleum, Telecom, Pharma, Auto and Engineering have been the other prominent sectors in the fund’s portfolio.

SBI Equity Hybrid Fund holds its debt allocation predominantly in Corporate Debt and G-secs. The fund was invested 19.2% in Corporate Debts and around 10% in G-secs. Having an average maturity of 6.35 years and modified duration of 4.42 years, the yield-to-maturity of the debt portfolio is at 10.31%.

Top Contributors

Among the stocks in the portfolio, Interglobe Aviation contributed the most to gains of the portfolio in the last one year with a portfolio return of 0.9%. Kotak Mahindra Bank, Divis Laboratories and HDFC Bank were the other top contributors to the portfolio gains. These stocks form part of top 10 holdings of the portfolio.

The stocks that eroded portfolio gains the most were Motherson Sumi Systems, Sundaram-Clayton, ITC and Lemon Tree Hotels.

Suitability of SBI Equity Hybrid Fund

Aggressive hybrid funds ideally offer the benefit of diversification across equity and debt. SBI Equity Hybrid Fund is mandated to invest 65-80% of its assets in equity and equity related instruments while the rest can be invested in debt and money market instruments.

The equity portion can enable long term capital appreciation while the debt portion can work as cushion against extreme market volatility. The scheme is well diversified across sectors, stocks and market caps and also invests in high quality corporate debt instruments. Further, the allocation to G-Secs makes the debt portfolio relatively safer.

SBI Equity Hybrid Fund has performed well across periods and has generated decent risk-adjusted returns for its investors. It is one of the popular funds in the category and is suitable for moderately high risk takers with investment horizon of 5 years or more. 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 does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. 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. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here.

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