The equity markets are currently at all-time high. Since aggressive hybrid mutual funds invest 65%-80% of its assets in equities, they have benefitted immensely; except that, pure equity funds have relatively higher gains.
However, if the market conditions turn volatile in the foreseeable future, aggressive hybrid mutual funds can offer better downside protection compared to pure equity funds. If you are looking for an investment opportunity with long-term growth potential in the equity market but at a lower risk, consider investing in aggressive hybrid funds.
Investing in aggressive hybrid mutual funds diversifies your portfolio across equity and debt. The equity component is the advantage an aggressive hybrid fund leverages to capture the upside potential of the stock market. Meanwhile, the debt component provides the cushion against market volatility.
Mirae Asset Hybrid Equity Fund is an aggressive hybrid fund that has constantly appeared in the top quartile performers in its category. It is known for its cautious investment approach.
Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Hybrid Equity Fund 5 years ago
Data as on August 31, 2021
(Source: ACE MF)
Mirae Asset Hybrid Equity Fund is an aggressive hybrid mutual fund that invests predominantly in equities and the balance in debt. Since its inception in July 2015, Mirae Asset Hybrid Equity Fund has made its presence felt, despite being a new entrant in the aggressive hybrid funds category. The fund has been quick to make a mark by building a superior performance record for itself. Even though Mirae Asset Hybrid Equity Fund’s performance during bear market phases so far has been muted, it has done well during recovery / bull phases. This shows Mirae Asset Hybrid Equity Fund’s ability to reward patient investors over complete market cycles. The fund is positioned as a low-risk alternative to pure equity schemes. But being a equity hybrid mutual fund, it retains the upside potential from investments in equities. An investment of Rs 10,000 in Mirae Asset Hybrid Equity Fund five years back would have grown to Rs 21,144 (at 16.2% CAGR). A similar investment in the benchmark CRISIL Hybrid 35+65 – Aggressive Index would have grown at around 13.6% CAGR, valuing it at Rs 18,898.
Table: Mirae Asset Hybrid Equity Fund’s performance vis-á-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year||2 Year||3 Year||5 Year||7 Year||Std Dev||Sharpe|
|Quant Absolute Fund||72||69.84||41.33||25.22||18.83||16.12||19.82||0.30|
|BNP Paribas Substantial Equity Hybrid Fund||661||42.57||25.86||18.08||—||—||15.78||0.23|
|Canara Rob Equity Hybrid Fund||5,995||42.63||27.03||17.16||15.74||15.27||14.89||0.22|
|BOI AXA Mid & Small Cap Equity & Debt Fund||348||71.29||42.55||17.04||17.14||—||20.83||0.17|
|Axis Equity Hybrid Fund||1,727||43.19||24.09||17.02||—||—||16.23||0.19|
|Kotak Equity Hybrid Fund||1,863||50.28||27.44||16.77||14.37||—||19.16||0.19|
|DSP Equity & Bond Fund||7,233||46.90||26.50||16.44||14.75||15.46||17.54||0.19|
|Mirae Asset Hybrid Equity Fund||5,609||42.68||24.19||16.22||16.15||—||16.82||0.19|
|ICICI Pru Equity & Debt Fund||17,398||54.06||26.35||15.70||15.11||15.00||19.41||0.17|
|SBI Equity Hybrid Fund||43,483||41.22||22.78||15.42||14.48||14.56||16.12||0.18|
|CRISIL Hybrid 35+65 – Aggressive Index||36.26||21.90||13.99||13.57||12.69||14.85||0.15|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on August 31, 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.
Belonging to a fund house driven by stringent systems and processes, Mirae Asset Hybrid Equity Fund has an impressive performance track record to its credit. The fund stands among the top quartile performers across most time periods. It has also managed to maintain a significant lead over the benchmark index. Over the 5-year period, this fund has outperformed the benchmark – CRISIL Hybrid 35+65 – Aggressive Index by a significant margin of about 2.5 percentage points.
Mirae Asset Hybrid Equity Fund gives high emphasis to risk management. Although it’s Standard Deviation of 16.82 (indicating its volatility) is higher than the benchmark (14.85), it is well below the category average (17.53) and quite competitive to its peers. The fund has rewarded investors with remarkable risk-adjusted returns. Furthermore, its Sharpe ratio (0.19) is far superior than the category average as well as the benchmark.
Investment strategy of Mirae Asset Hybrid Equity Fund
Classified under aggressive hybrid funds, Mirae Asset Hybrid Equity Fund has a mandate to invest 65% to 80% of its assets in equities and 20% to 35% in debt instruments. The fund’s equity investments are typically in large-sized companies that help provide more stability and less price volatility. 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.
Mirae Asset Hybrid Equity Fund’s investment strategy is driven by valuation, earnings growth, and interest rate outlook. The fund holds a well-diversified portfolio without any bias towards any particular theme, sector, or style in stock selection. Following a mix of the 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 managers look for long-term investment opportunities in stocks of high-quality businesses available at reasonable prices. They follow a 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 July 31, 2021
(Source: ACE MF)
Being an aggressive hybrid mutual fund, Mirae Asset Hybrid Equity Fund usually holds around 70%-75% of its assets in equities and remaining in debt and cash. As on July 31, 2021, the fund held around 72.1% allocation in equities, investing in as many as 61 stocks. It held an allocation of 1.1% in Nifty 50 ETF, 1.5% in Rights, with 19.1% allocation to debt, while the remaining 6.2% was in cash equivalents and others.
The top 10 stock holdings together accounted for approximately 33.6% of its assets. HDFC Bank tops the list of stocks with an exposure of close to 5.6%. Infosys, ICICI Bank, Axis Bank, and TCS are other stocks featuring among the top 5 holdings in the portfolio. Notably, most of its top holdings have remained the same over the last one year.
Mirae Asset Hybrid Equity Fund has benefitted from its significant weightage in ICICI Bank, SBI Infosys, HDFC Bank, L&T, Axis Bank, TCS, and Tata Steel that have been the top contributors to its returns in the last one year. Stocks like Max Financial Services, Voltas, Divi’s Laboratories, Power Finance Corporation, Ashok Leyland, Havells India, HDFC Ltd., etc. have been the other major contributors to its extraordinary performance.
Mirae Asset Hybrid Equity Fund’s portfolio is diversified across as many as 20 different sectors. Banks lead with an allocation of close to 17.6% in the portfolio, whereas it also holds another 8.5% in Finance stocks. Infotech, Consumption, Petroleum, Pharma, Auto & Auto ancillaries, Consumer Durables, Engineering, and Metal stocks follow with an exposure of 2%-10% in each.
The debt allocation in Mirae Asset Hybrid Equity Fund’s portfolio is diversified across 27 debt instruments consisting of Sovereign rated G-secs (10.6% of its assets), high rated Corporate Debt instruments (6.3% of its assets) along with Commercial Papers. It also holds significant exposure in cash equivalents. The fund usually maintains a high-quality debt portfolio, with an average maturity of around 5-6 years, which makes it moderately sensitive to interest rate changes.
Mirae Asset Hybrid Equity Fund holds a fairly diversified portfolio and follows strong risk management processes and prudent approach to valuations. This edge gives Mirae Asset Hybrid Equity Fund the dexterity to handle market volatility and downswings. Though the fund may witness slightly higher volatility during extreme market conditions, one can expect its returns to be highly rewarding over complete market cycle.
The fund’s focus on quality high-growth companies may lead to a significant upside over longer investment time periods. Hybrid Equity Funds come with ‘moderate risk-moderate return’ profile. This means, Mirae Asset Hybrid Equity Fund is a suitable bet for investors with moderate risk profile looking for a well-managed aggressive hybrid fund with a time horizon of at least 3-5 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