After scaling all-time highs the Indian equity market has turned volatile amid resurgence in COVID-19 cases. However, since the government has not announced any major lockdown restrictions and with the pace of vaccination drive picking up, the impact on the equity market may not be as severe as the one witnessed last year.

Despite this, it is important to be cautious about your investment approach in the current scenario because there are a lot of other factors in play that impact the market movement.

If you are looking for capital appreciation but do not have a high risk appetite you can consider investing in funds that are less risky and are well poised to handle uncertain market conditions. Aggressive Hybrid Funds are likely to be less volatile than pure equity funds and thus can provide some stability to your portfolio. However, not all aggressive hybrid funds may be efficient in managing downside risk. Therefore, you need to choose schemes prudently.

Mirae Asset Hybrid Equity Fund (MAHEF) is an aggressive hybrid fund that is known for its cautious investment approach and has a strong performance record.

Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Hybrid Equity Fund 5 years ago

Data as on March 23, 2021
(Source: ACE MF)

MAHEF is an aggressive hybrid fund that aims to strike a balance between equity and debt investment. While it captures growth opportunities through equity, its allocation to debt focuses on offering stability to investors. Despite being a new entrant in the aggressive hybrid funds category, the fund has been quick to make a mark and build a superior track record for itself. MAHEF has stood strong much ahead of its prominent category peers and has constantly figured in the list of top quartile performers. Though the fund has trailed the benchmark during bear market phases it has done well during recovery / bull phases. An investment of Rs 10,000 in MAHEF 5-years back would have grown to Rs 21,145 (at 16.2% CAGR). A similar investment in the benchmark CRISIL Hybrid 35+65 – Aggressive Index would have grown at around 13.9% CAGR, valuing it at Rs 19,139.

Table: Mirae Asset Hybrid Equity 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
Quant Absolute Fund	16	106.15	26.26	20.22	16.63	18.18	19.30	0.198
BNP Paribas Substantial Equity Hybrid Fund	523	61.37	19.23	16.26	—	—	15.36	0.203
Canara Rob Equity Hybrid Fund	4,565	62.92	17.39	15.28	15.85	16.96	14.74	0.183
Mirae Asset Hybrid Equity Fund	4,713	70.05	15.41	14.92	16.15	—	16.65	0.162
Kotak Equity Hybrid Fund	1,351	84.20	19.62	14.29	14.99	—	19.09	0.142
DSP Equity & Bond Fund	6,325	65.40	17.66	14.12	15.13	16.87	17.49	0.143
SBI Equity Hybrid Fund	36,765	59.70	15.15	13.50	14.04	16.10	16.05	0.143
Edelweiss Aggressive Hybrid Fund	33	66.05	15.05	13.13	12.36	13.78	16.54	0.133
Sundaram Equity Hybrid Fund	1,656	61.85	13.28	12.62	14.31	12.55	16.52	0.134
Franklin India Equity Hybrid Fund	1,374	69.08	14.52	12.60	12.65	15.36	16.86	0.130
CRISIL Hybrid 35+65 – Aggressive Index		62.96	15.10	13.53	13.81	13.61	14.82	0.138

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on March 23, 2021
(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 has built an impressive performance track record to its credit. The fund has constantly figured among the list of top quartile performers across time periods since its inception, and has been well ahead of most of its prominent category peers. Over a period of 5 years, the fund has outperformed the benchmark – CRISIL Hybrid 35+65 – Aggressive Index by a significant margin of over 2 percentage points.

Belonging to a process-driven fund house, MAHEF gives high emphasis to risk management. Although it’s Standard Deviation of 16.65 (indicating its volatility) is higher than the benchmark (14.82), it is well below the category average (17.47) and quite competitive to its peers. The fund has rewarded investors with remarkable risk-adjusted returns. Its Sharpe ratio (0.16) is among the best in the category and far superior than the category average as well as the benchmark.

Investment strategy of Mirae Asset Hybrid Equity Fund

Classified under aggressive hybrid funds, MAHEF is mandated to invest 65% to 80% of its assets in equities and 20% to 35% in debt instruments. The equity investments of the fund are typically held in large sized companies that help provide more stability and less price volatility to the fund. On the debt side it retains flexibility to invest across securities in the debt and money markets, but the ones that are rated investment grade.

MAHEF’s investment strategy is driven by valuation, earnings growth, and interest rate outlook. The fund holds a well-diversified portfolio without having bias towards any particular theme, sector or style while picking stocks for the portfolio. Following a mix of top down and bottom up approach to investing, the fund managers broadly analyse the macro economy and invest in stocks of high-growth companies expected to benefit from macroeconomic, sectoral and industry trends. The fund manager’s look for long-term investment opportunities in stocks of high-quality businesses that are available at reasonable prices and follow buy and hold investment strategy to benefit from long term growth potential of such stocks and offer decent capital appreciation to its investors.

Graph 2: Top portfolio holdings in Mirae Asset Hybrid Equity Fund

Holding in (%) as on February 28, 2021
(Source: ACE MF)

Being an aggressive hybrid fund, MAHEF usually holds around 70% to 75% of its assets in equities and remaining in debt and cash. As on February, 2021, the fund held around 74.9% allocation in equities, investing in as many as 52 stocks. It held an allocation of 1.7% in Nifty ETF, 1.2% in Rights, 10.5% allocation to debt, while the remaining 11.7% was in cash equivalents and others. The top 10 stock holdings together accounted for around 40% of its assets. HDFC Bank tops the list of stocks with an exposure of around 7.5%. ICICI Bank, Infosys, Axis Bank, and Reliance Industries are other stocks that feature among the top 5 holdings in the portfolio. Notably, most of its top holdings have remained the same over the last one year.

MAHEF has benefitted from its significant weightage in Reliance Industries, Infosys, HDFC Bank, TCS, SBI, ICICI Bank, Havells India, Sun Pharma, L&T, Voltas, Max Financial Services, etc. that have been the top contributors to its returns in the last one year.

MAHEF’s portfolio is diversified across as many as 20 different sectors. Banks lead with an allocation of around 22.4% in the portfolio, whereas it also holds another 8% into Financials. Infotech, Petroleum, Pharma, and Consumption stocks follow closely behind with an exposure of around 5% to 10%. Consumer Durables, Auto / Auto Ancillaries, Telecom, Engineering, Chemicals, Metals, etc. have been among the other prominent sectors in the fund’s portfolio.

The debt allocation in MAHEF’s portfolio is diversified across 22 debt instruments consisting of Sovereign rated G-secs and moderate to high rated Corporate Debt instruments. It also holds significant exposure in cash equivalents. The fund usually maintains a high-quality debt portfolio, with an average maturity of around 5 to 7 years, which makes it moderately sensitive to interest rate changes.

Suitability

MAHEF does not resort to taking aggressive calls, but maintains a diversified portfolio of quality high conviction stocks. The prudent investment strategies followed by the fund house has enabled it to beat the category average, while keeping the risk at reasonable levels. The fund managers of MAHEF have managed to keep its volatility at a reasonable level and have more than delivered on the returns front, thus compensating investors well for the level of risk taken.

Aggressive Hybrid Equity Funds come with moderate risk – moderate return profile. Hence, there is a possibility that MAHEF may go through bouts of underperformance during swift upside market rallies, but provide some stability when equity markets turn extremely volatile. This makes MAHEF a suitable bet for conservative investors looking for a well managed aggressive hybrid fund with a time horizon of at least 3 to 5 years.

This article first appeared on PersonalFN here