Aggressive hybrid funds offer the benefit of diversification across equity and debt. With predominant allocation to equities, these funds can push up your overall returns during euphoric market phases. On the other hand, significant allocation to debt can, to an extent, protect you from the extreme adversities of the equity markets.
Thus aggressive hybrid funds are well placed to provide long term capital appreciation with an element of stability for cautious investors. A tactical asset allocation towards aggressive hybrid fund can prove advantageous in pushing up your portfolio gains at a reasonable risk.
Do note that the ability of the fund to generate decent returns at a relatively lower risk depends mainly on the way the fund manager handles the construction of portfolio for both equity and debt portion.
SBI Equity Hybrid Fund (SEHF) is one such aggressive hybrid fund that invests in a diversified portfolio of equities of high growth companies and balances the risk through investing the rest in fixed income securities.
Graph 1: Growth of Rs 10,000 if invested in SBI Equity Hybrid Fund 5 years ago
Data as on July 08, 2020
(Source: ACE MF)
SEHF has generated a healthy compounded return of 14.8% CAGR, since its inception in December 1995. However, the journey of the fund has not been smooth; it has witnessed bouts of prolonged underperformance as well. Nevertheless, the fund rewarded investors who were patient and gave sufficient time to their investment. SEHF has stood strong in the recent market correction, which has also helped improve its longer performance track record. Rs 10,000 invested in SEHF five years back would have by now appreciated to Rs 14,787, a growth of 8.14% CAGR which is largely in line with 8.07% generated by the benchmark CRISIL Hybrid 35+65 – Aggressive Index.
Table: SBI Equity Hybrid Fund’s performance vis-à-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year (%)||2 Year (%)||3 Year (%)||5 Year (%)||7 Year (%)||Std Dev||Sharpe|
|BNP Paribas Equity Hybrid Fund||387||6.64||8.26||7.86||NA||NA||14.31||0.042|
|Canara Rob Equity Hybrid Fund||2,884||4.95||6.57||7.32||9.07||14.64||13.91||0.030|
|Mirae Asset Hybrid Equity Fund||3,274||0.61||5.94||6.98||NA||NA||16.00||0.027|
|SBI Equity Hybrid Fund||28,583||-0.11||4.52||6.29||8.13||14.30||15.24||0.016|
|Sundaram Equity Hybrid Fund||1,514||-1.29||2.87||5.82||7.82||10.21||15.74||0.008|
|DSP Equity & Bond Fund||5,406||3.74||4.77||5.20||8.36||13.73||16.67||0.001|
|ICICI Pru Equity & Debt Fund||17,423||-5.82||1.49||2.79||7.56||13.54||16.74||-0.035|
|Franklin India Equity Hybrid Fund||1,319||-4.97||0.43||2.61||5.77||12.25||15.31||-0.049|
|Kotak Equity Hybrid Fund||1,132||-2.31||1.69||2.23||6.80||10.47||18.07||-0.044|
|HDFC Hybrid Equity Fund||15,747||-6.45||0.71||2.01||7.18||14.23||15.68||-0.047|
|CRISIL Hybrid 35+65 – Aggressive Index||2.31||5.24||6.09||8.08||11.10||13.82||0.003|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on July 08, 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.
SEHF has shown a stellar performance across time periods and has outperformed many of its peers in the aggressive hybrid funds category. The fund’s short term performance of up to three years has been satisfactory; it generated a lead of around 4 percentage points over the category average. Over longer period of 7 years, it has clearly outperformed the benchmark and category average by a noticeable margin of close to 3 percentage points.
SEHF has shown a fair level of stability. Its standard deviation of 14.30 signifies that the fund’s volatility has been higher than the benchmark (11.10), but well below the category average (16.88). Its Risk Adjusted Return (Sharpe Ratio) of 0.016 is superior than its benchmark and most category peers.
Investment strategy of SBI Equity Hybrid Fund
SEHF aims to provide investors with opportunities for long-term capital appreciation along with liquidity of an open-ended scheme by investing in a mix of debt and equity. Accordingly, the fund invests minimum 65% of its assets in equity and equity related instruments, while it has the leeway to allocate 20%-35% of its assets in debt and money market instruments at any point of time. The fund has a large cap bias where it allocates 50-60% of its assets; whereas 15-20% of its assets is diversified across mid and small caps.
SEHF holds a diversified portfolio of stocks of high growth companies and balances the risk through investing the rest in moderate to high rated fixed income securities. The fund manager follows bottom-up approach to stock-picking and is selective while choosing companies for the portfolio.
On the debt front, the fund diversifies its portfolio across range of moderate to high rated instruments of medium to longer maturity. The average maturity and duration of its portfolio is usually in the range of 3-7 years, and is based on the fund manager’s outlook on the macros and direction of interest rate.
Graph 2: Top portfolio holdings in SBI Equity Hybrid Fund
Holding in (%) as on May 31, 2020
(Source: ACE MF)
As on May 31, 2020, SEHF held a fairly diversified portfolio of around 55 stocks spread across market caps. Top banking names like HDFC Bank, State Bank of India, ICICI Bank, and Axis Bank figured among its top 10 holdings. Bharti Airtel, Divi’s Laboratories, Infosys, ITC, Shree Cement, and BPCL stood among the other prominent names in the portfolio.
Over the last two years, SEHF has benefited from its holdings in Divi’s Laboratories, Bharti Airtel, Info Edge (India), ICICI Bank, Infosys, etc. While the fund manager booked substantial profits in TCS, Bajaj Holdings & Investment, Asian Paints, etc., stocks like SBI, Lemon Tree Hotels, Sundaram-Clayton, HDFC Bank, eClerx Services, etc., dragged down the returns of the fund.
SEHF’s portfolio is spread across a range of sectors, with major concentration to Banks (14.9%) and Finance (7.1%). Pharma, Petroleum, Engineering, Infotech, and Telecom follow behind with an allocation of around 4% to 7%, respectively. Cement, Power and Transportation have been the other prominent sectors in the fund’s portfolio.
On the debt front, the fund held around 16% of its assets in moderate to high rated corporate debt instruments, while around 9% of its portfolio was invested in sovereign rated G-secs. The fund usually maintains a high quality debt portfolio, with an average maturity of around six years, which makes it moderately sensitive to interest rate changes.
SEHF has delivered promising returns over longer time periods and has turned out to be a rewarding proposition for investors. The superior performance of the fund has been driven by the smart sector and stock selection strategy followed by the fund management team. Even in the recent corrective phase, the performance of the fund has been satisfactory, where it has managed to restrict losses reasonably. However, given the dominant exposure to equities, risk of capital erosion cannot be ruled out. This makes SEHF suitable for investors with moderately-high risk appetite and a long term investment horizon of at least five 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