A mutual fund following a multicap approach can prove to be a worthy long term bet as investors can benefit from the stability of large caps as well as high growth potential of mid caps and small caps. But the presence of mid and small cap stocks in the portfolio heightens the risk making it unsuitable for investors with moderate risk appetite.

Investors looking to gain from investment across the universe of stocks but at a lower risk can consider investing in aggressive hybrid fund that invest predominantly in equities along with meaningful exposure in debt instruments to reduce volatility.

Mirae Asset Hybrid Equity Fund (MAHEF) is one such aggressive hybrid fund that invests in a mix of equity and debt instruments with an aim to appreciate wealth.

Launched in July 2015, the fund is among the latest entrants in the aggressive hybrid fund category managing an asset size of Rs 3,190 crore. The equity portion of the fund is managed by Mr Neelesh Surana (since inception) while Mr Mahendra Jajoo (since September 2016) manages the debt portion.

Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Hybrid Equity Fund since inception

Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Hybrid Equity Fund since inception

Data as on February 05, 2020
(Source: ACE MF)

MAHEF has managed to generate decent lead over the benchmark index since its inception. Had you invested Rs 10,000 in MAHEF on its inception, it would now be worth Rs 16,887 (as calculated on February 05, 2020). This translates into compounded annualised growth rate of 12.3%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark CRISIL Hybrid 35+65 Aggressive Index would have grown to Rs 15,178 (a CAGR of 9.7%). MAHEF has managed to reward investors with superior returns in its short performance span.

Graph 2: Mirae Asset Hybrid Equity Fund’s year-on-year performance

Graph 2: Mirae Asset Hybrid Equity Fund's year-on-year performance

*YTD as on February 05, 2020
(Source: ACE MF)

Launched in July 2015, MAHEF does not have a long term track record to its credit. The year-on-year performance comparison of the fund with its benchmark CRISIL Hybrid 35+65 Aggressive Index shows that the fund outperformed the index in 4 out of last 5 calendar years, except CY 2018 where its performance was nearly in line with the benchmark. MAHEF’s outperformance over the benchmark has been in the range of 1-6 percentage points. The fund has shown its ability to perform well during market rallies and also manage the downside well when the markets are under pressure. Though in the current year the fund has slightly lagged the benchmark till now and has generated negative returns, it has the potential to bounce back.

Table: Mirae Asset Hybrid Equity Fund’s performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Mirae Asset Hybrid Equity Fund 3,190 10.36 9.42 14.28 NA 9.25 0.21
Principal Hybrid Equity Fund 1,428 1.74 6.13 13.40 12.43 9.80 0.13
Canara Rob Equity Hybrid Fund 2,824 8.84 8.52 12.56 12.74 8.32 0.19
Sundaram Equity Hybrid Fund 1,832 8.15 9.12 12.25 10.09 8.35 0.18
SBI Equity Hybrid Fund 31,620 9.95 9.25 12.15 13.25 8.81 0.20
ICICI Pru Equity & Debt Fund 23,073 6.19 6.27 12.06 12.81 9.57 0.10
HDFC Hybrid Equity Fund 20,582 5.70 5.80 11.47 12.62 8.97 0.12
DSP Equity & Bond Fund 6,279 8.36 6.24 11.19 12.87 10.60 0.12
Kotak Equity Hybrid Fund 1,454 7.22 4.94 10.01 9.56 10.13 0.09
Edelweiss Aggressive Hybrid Fund 11 6.70 6.71 9.87 9.97 8.91 0.15
L&T Hybrid Equity Fund 7,628 2.39 3.66 9.68 12.05 9.48 0.08
Shriram Hybrid Equity Fund 62 6.09 6.33 9.59 8.52 8.34 0.11
Nippon India Equity Hybrid Fund 8,335 -0.37 2.85 9.48 11.12 11.19 0.04
LIC MF Equity Hybrid Fund 404 9.74 6.22 9.35 7.65 10.17 0.09
Franklin India Equity Hybrid Fund 1,803 5.86 5.74 9.27 11.93 8.17 0.08
Quant Absolute Fund 2 6.76 6.00 8.91 10.20 10.97 0.07
Aditya Birla SL Equity Hybrid '95 Fund 10,512 1.89 2.88 8.81 11.28 9.27 0.02
Baroda Hybrid Equity Fund 509 0.73 2.57 8.69 8.94 9.87 0.03
Tata Hybrid Equity Fund 4,155 5.50 4.57 8.16 10.76 9.16 0.03
UTI Hybrid Equity Fund 4,592 -0.09 1.98 8.15 8.79 9.49 0.00
CRISIL Hybrid 35+65 – Aggressive Index 7.97 7.56 11.19 10.47 7.93 0.13

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 February 05, 2020
(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.

MAHEF outperformed the benchmark and category average across rolling period. Its outperformance when compared to the category average is in the range of 3-5 percentage points, while when compared to the benchmark it is in the range of 2-3 percentage points.

In fact, MAHEF was the category topper on 2-year and 3-year rolling return basis. The other top performers during the period were Canara Rob Equity Hybrid FundSundaram Equity Hybrid Fund, and SBI Equity Hybrid Fund.

In terms of risk-return profile, the fund’s volatility has been slightly lower than the category average, though higher than the benchmark. However, the fund’s risk-adjusted return as denoted by Sharpe ratio is among the best in the category.

Investment strategy of Mirae Asset Hybrid Equity Fund

Categorised as aggressive hybrid fund, MAHEF invests predominantly in equity and equity related instruments. It can invest up to 35% of its assets in debt and money market instruments. The fund’s equity and debt allocation is influenced by valuation, earnings growth and interest rate outlook.

For the equity portion, the fund aims to build a diversified portfolio of strong growth companies available at reasonable price. The fund has the flexibility to invest across market capitalisation, theme or investment styles. It invests in companies that are likely to benefit from macroeconomic, industry and sectoral trends after doing bottom up analysis and due diligence.

For the debt portion, the fund has the flexibility to invest across all the securities in the debt and money markets with more emphasis on highly rated instruments. The fund follows a top down approach for taking interest rate view, sector allocation along with a bottom up approach for security/instrument selection. The portfolio maturity is actively managed in line with the interest rate outlook.

Graph 3: Portfolio allocation and market capitalisation trend in Mirae Asset Hybrid Equity Fund

Graph 3: Portfolio allocation and market capitalisation trend in Mirae Asset Hybrid Equity Fund

Holding (in %) as on December 31, 2019
(Source: ACE MF)

MAHEF follows a multicap approach to invest across market capitalisation, with a tilt towards large cap companies. The funds equity allocation in the last one year has been in the range of 68-74%, while the rest was held in debt and cash equivalents. Its allocation towards large cap is in the range of 56-63%, while it allocates 10-15% of its assets mid and small caps. The fund’s allocation towards small caps has reduced in the last one year from around 5% to 2%. As on December 31, 2019 MAHEF allocated 59.3% in large caps, 8.7% in mid caps, 2% in small caps, 22.2% in debt and the rest in cash and equivalent.

Graph 4: Top portfolio holdings in Mirae Asset Hybrid Equity Fund

Holding (in %) as on December 31, 2019
(Source: ACE MF) 

As on December 31, 2019, MAHEF held a diversified portfolio of 53 stocks. The top 10 stocks which include top large cap names constitute 37.6% of its portfolio. HDFC Bank tops the list with an allocation of 6.5%, followed by ICICI Bank at 5.1%, Reliance Industries and SBI at 4.3% each. Rest of the stocks in the top 10 holding have allocation in the range of 2.5-3%.

In terms of sectors, the fund has the highest exposure to Banking of 21.8% with another 6.6% in Finance. The other prominent sectors in the portfolio are Infotech, Consumption, Petroleum products, Pharma, Engineering, Auto, etc.

The fund’s debt portion predominantly includes investment in commercial paper (8.7%), government securities (7.9%) and corporate debt (3.9%). Having an average maturity of 6.62 years and modified duration of 4.88 years, the yield-to-maturity of the debt portfolio is at 7.12%.

Top contributors

Among the stocks in the portfolio, ICICI Bank, HDFC Bank, Reliance Industries contributed the most to the fund’s gains in the last one year with a weighted return of around 5%. The fund also gained from its holdings in Axis Bank, Info Edge (India), Kotak Mahindra Bank, Tata Global Beverages, among others.

On the other hand stocks like ITC, L&T, Aurobindo Pharma, Tata Steel, Ceat, ZEEL, etc. eroded some of its gains.

Suitability Mirae Asset Hybrid Equity Fund

MAHEF maintains a well-diversified portfolio of stocks which has enabled it to reward investors at reasonable level of risk. The fund’s investment in equities across market capitalisation as well as debt instruments of varying maturity can help it take advantage of dynamic market conditions. MAHEF aims to maintain a large base of stocks to avoid concentration risk. However, both equity and debt as asset class carry various risks. This makes MAHEF suitable for investors with moderately high risk appetite and investment horizon of at least 5 years.

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. Returns mentioned herein are in no way a guarantee or promise of future returns. 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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