The equity market has turned volatile once again amid profit booking following a sharp rally in the last few months. With the ongoing concerns about the new COVID-19 variant it is difficult to predict the direction of the market from here on. Meanwhile, the RBI kept interest rate unchanged, to support the economic growth as certain activities are still below their pre-pandemic level, adding to uncertainty about hike in policy rates.
During such uncertain market conditions, investors with low to moderate risk profile might be better off avoiding pure equity or pure debt investment. Instead, invest in a mix of asset classes that could help you generate optimum risk-adjusted returns.
Aggressive Hybrid Funds offer you diversification across equity and debt asset classes. So, if your investment objective is to benefit from long term capital appreciation of equities, albeit at a lower risk, investing in an aggressive hybrid fund could prove to be worthwhile.
SBI Equity Hybrid Fund is the most popular aggressive hybrid fund that has delivered promising returns over longer time periods and rewarded investors with reasonable risk-adjusted returns.
Graph 1: Growth of Rs 10,000 if invested in SBI Equity Hybrid Fund 5 years ago
Data as on December 07, 2021
(Source: ACE MF)
With an AUM of around Rs 48,043 crore, SBI Equity Hybrid Fund is the largest scheme not only in the aggressive hybrid funds category, but also among actively managed equity-oriented schemes. Having a track record of around 26 years, SBI Equity Hybrid Fund has generated a healthy compounded return of 15.7% CAGR since its inception. However, the journey of the fund has not been smooth; it has witnessed bouts of prolonged underperformance as well. Nevertheless, the fund rewarded the patience of investors who gave their investment sufficient time to prove its mettle. SBI Equity Hybrid Fund has stood strong in the recent market crash while in the current bull phase, it has performed well compared to the benchmark. Subsequently, this has helped improve its long-term performance track record. If you would have made an investment of Rs 10,000 invested in SBI Equity Hybrid Fund five years back, it would have appreciated to Rs 20,432 by now, growing at a CAGR of about 15.4% which is nearly in line with the returns generated by the benchmark CRISIL Hybrid 35+65 Aggressive Index.
Table: SBI Equity Hybrid Fund’s performance vis-a-vis category peers
|Quant Absolute Fund
|Kotak Equity Hybrid Fund
|ICICI Pru Equity & Debt Fund
|BNP Paribas Substantial Equity Hybrid Fund
|DSP Equity & Bond Fund
|Canara Rob Equity Hybrid Fund
|Mirae Asset Hybrid Equity Fund
|SBI Equity Hybrid Fund
|HDFC Hybrid Equity Fund
|Aditya Birla SL Equity Hybrid '95 Fund
|CRISIL Hybrid 35+65 – Aggressive Index
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on December 07, 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.
Although SBI Equity Hybrid Fund has at times struggled to keep pace with the benchmark and the category average, it has the potential to reward investors over the long run. Over the longer time period of 3 years, 5 years, and 7 years SBI Equity Hybrid Fund stands among the above-average performers in the category; and it is well ahead of the benchmark. Even in the last one year period, it has generated a noticeable lead over the benchmark index.
SBI Equity Hybrid Fund’s standard deviation of 15.66% signifies that the fund’s volatility has been higher than the benchmark but well below the category average. Its Sharpe Ratio of 0.24 is superior compared to many of its category peers; thus, rewarding its investors with decent risk-adjusted returns.
Investment strategy of SBI Equity Hybrid Fund
SBI Equity Hybrid Fund aims to provide investors with opportunities for long-term capital appreciation 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 can allocate 20%-35% of its assets in debt and money market instruments at any point of time. It 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 the bottom-up approach to stock-picking and selective about choosing companies for the portfolio. The fund manager looks to invest in high-growth-oriented stocks of companies across market caps, but is cautious about the price he pays for the stock, and prefers holding most of them with a long term view.
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 of its portfolio is usually in the range of 3 to 6 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 October 31, 2021
(Source: ACE MF)
SBI Equity Hybrid Fund invests around 70% of its assets in equities with the balance in cash, debt, and others. As on October 31, 2021, SBI Equity Hybrid Fund held a fairly diversified portfolio of around 43 stocks spread across market caps but with a large-cap bias. Top large cap names such as, ICICI Bank, HDFC Bank, Infosys, Divi’s Laboratories, and Bajaj Finance figure among its top 10 holdings. Most of the stocks in the top 10 holdings have been part of its portfolio for over two years now.
In the last one year, SBI Equity Hybrid Fund has benefited immensely from its holdings in Bajaj Finance, SBI, Divi’s Laboratories, Infosys, Avenue Supermarts, Bharti Airtel, HDFC Bank, ICICI Bank, L&T, among others.
SBI Equity Hybrid Fund’s portfolio is diversified across range of cyclical, defensive, and sensitive sectors. It has major allocation to Banking & Finance that collectively account for 20.8% of its assets. Pharma, Infotech, and Petroleum follow with an allocation in the range of 4% to 9%. Engineering, Retail, Consumption, and Cement are the other prominent sectors in the fund’s portfolio.
The debt allocation in SBI Equity Hybrid Fund’s portfolio is diversified across 61 debt instruments consisting mainly of and moderate to high-rated Corporate Debt instruments and Sovereign rated G-secs. The fund usually maintains an average maturity of around 5 years, which makes it moderately sensitive to interest rate changes.
Belonging to a process-driven fund house with sound risk management, SBI Equity Hybrid Fund carries a positive outlook. Even though it has, at times, trailed the category average, it has done reasonably well compared to the benchmark and rewarded investors over the long term. Moreover, the fund has managed to achieve this at a reasonable level of risk compared to its peers, thereby generating decent risk-adjusted returns. With a portfolio diversified across equity and debt, SBI Equity Hybrid Fund is well placed to offer the benefit long term capital appreciation as well as stability.
Both the fund managers have been at the helm of the scheme for nearly a decade now. They have done reasonably well to maintain the performance of the fund even in highly volatile market conditions.
This makes SBI Equity Hybrid Fund suitable for cautious investors having moderate to high risk appetite and an investment horizon of at least 3 to 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