The equity market has once again witnessed high volatility over the past few weeks amid fears of global slowdown. In the current market environment, if you are looking for capital appreciation from equities but do not have a high-risk appetite, you can consider investing in Aggressive Hybrid Funds.
These schemes are likely to be less volatile than pure equity funds due to the presence of a debt component. Thus, Aggressive Hybrid Funds can provide some stability to your portfolio.
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
Past performance is not an indicator of future returns
Data as on September 28, 2022
(Source: ACE MF)
The erstwhile SBI Magnum Balanced Fund is now classified under the Aggressive Hybrid Fund category and is now known as SBI Equity Hybrid Fund. With an AUM of around Rs 55,268 crore, SBI Equity Hybrid Fund is one of the largest equity-oriented mutual fund schemes in India. The fund holds a diversified portfolio of stocks of high-growth companies and balances the risk by investing the rest in fixed-income securities. Having a track record of over 25 years, SBI Equity Hybrid Fund has generated a healthy compounded return of 15.1% CAGR since inception. However, the journey of the fund has not been smooth; it witnessed bouts of prolonged underperformance as well. Nevertheless, the fund rewarded investors who kept their patience and gave sufficient time to their investments. SBI Equity Hybrid Fund has stood strong in during the market crash of 2020, while it has also done well in the recent bull phase. This has also helped improve its longer performance track record. An investment of Rs 10,000 in SBI Equity Hybrid Fund five years back would have by now appreciated to Rs 17,829, a growth of about 12.3% CAGR, which is about a percentage point higher than the 11.3% CAGR generated by the benchmark CRISIL Hybrid 35+65 Aggressive Index.
Table: SBI Equity Hybrid 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 |
| ICICI Pru Equity & Debt Fund | 20,360 | 7.40 | 34.27 | 20.38 | 14.34 | 15.22 | 19.57 | 0.25 |
| UTI Hybrid Equity Fund | 4,448 | 0.61 | 24.75 | 15.81 | 9.76 | 11.01 | 18.34 | 0.21 |
| Canara Rob Equity Hybrid Fund | 8,307 | -1.69 | 19.15 | 15.54 | 12.72 | 13.12 | 15.50 | 0.24 |
| HDFC Hybrid Equity Fund(Adjusted) | 18,909 | 1.97 | 24.62 | 14.82 | 11.21 | 12.59 | 18.21 | 0.20 |
| Mirae Asset Hybrid Equity Fund | 7,053 | -1.45 | 20.29 | 14.75 | 12.42 | 14.05 | 17.27 | 0.20 |
| Tata Hybrid Equity Fund | 3,299 | 1.20 | 23.06 | 13.79 | 10.31 | 10.19 | 17.42 | 0.19 |
| SBI Equity Hybrid Fund | 55,268 | -0.29 | 21.25 | 13.67 | 12.25 | 12.59 | 16.47 | 0.19 |
| DSP Equity & Bond Fund | 7,644 | -4.41 | 19.65 | 13.31 | 11.30 | 12.54 | 17.86 | 0.19 |
| L&T Hybrid Equity Fund | 4,686 | -2.64 | 17.35 | 12.22 | 8.60 | 10.28 | 17.68 | 0.16 |
| Aditya Birla SL Equity Hybrid '95 Fund | 7,961 | -4.24 | 20.60 | 11.97 | 8.13 | 10.45 | 18.17 | 0.16 |
| CRISIL Hybrid 35+65 – Aggressive Index | -0.47 | 18.15 | 13.83 | 11.29 | 11.99 | 15.27 | 0.19 |
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on September 28, 2022
(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 rewarded investors reasonably over the long run. Over the longer time period of 5-year and 7-year, SBI Equity Hybrid Fund stands among the top quartile performers in the category and ahead of the benchmark. Even on the shorter 1-year and 2-year periods, it has generated a noticeable lead over the benchmark index and many of its prominent peers.
SBI Equity Hybrid Fund has shown a fair level of stability as well. Its standard deviation of 16.47 signifies that the fund’s volatility is higher than the benchmark (15.27) but well below the category average (17.76). Its risk-adjusted returns, as denoted by the Sharpe Ratio (0.19), is on par with that of the benchmark and the category average, denoting the fund’s ability to generate a fair premium for the risk taken.
Investment strategy of SBI Equity Hybrid Fund
SEHF aims to provide investors with opportunities for long-term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. Accordingly, the fund invests a minimum of 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 is selective while 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 is willing to pay for the stock and prefers holding most of them with a long-term view.
On the debt front, the fund diversifies its portfolio across a 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 2 to 6 years and is based on the fund manager’s outlook on the macros and the direction of interest rate.
Graph 2: Top portfolio holdings in SBI Equity Hybrid Fund
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Holding in (%) as of August 31, 2022
(Source: ACE MF)
SBI Equity Hybrid Fund invests around 70% of its assets in equities, with the balance in cash, debt, and others. As of August 31, 2022, SBI Equity Hybrid Fund held a fairly diversified portfolio of 39 stocks spread across market caps. Top large-cap names like ICICI Bank, HDFC Bank, Infosys, Reliance Industries, and Kotak Mahindra Bank figure among its top 10 holdings. Many of these stocks have been part of the fund’s top holdings for over two years now. Notably, 5 out of the top 10 holdings of SEHF are Banking & Finance stocks.
Over the last one year, SBI Equity Hybrid Fund gained the most from its holdings in Solar Industries India, SBI, ICICI Bank, and Page Industries. However, its holdings in Divi’s Laboratories, Infosys, Shree Cement, ICICI Lombard General Insurance, and HDFC Bank, among others, eroded some of its gains.
SBI Equity Hybrid Fund’s portfolio is spread across a range of cyclical, defensive, and sensitive sectors. It has a major allocation to Banking & Finance that collectively account for 22.4% of its assets. Pharma, Auto Ancillaries, Petroleum, Infotech, Engineering, and Retail follow with an allocation in the range of 3% to 6%.
The debt allocation in SBI Equity Hybrid Fund’s portfolio is diversified across 49 debt instruments consisting mainly of Sovereign rated G-secs, and moderate to high rated Corporate Debt instruments. The fund usually maintains a high-quality debt portfolio, with an average maturity of around 2-8 years in recent months, which makes it moderately sensitive to interest rate changes.
Suitability
With predominant allocation to equities and significant allocation to debt, SBI Equity Hybrid Fund is well placed to offer the benefit of both worlds and provide long-term capital appreciation along with stability.
SBI Equity Hybrid Fund has delivered promising returns over longer time periods and has turned out to be a rewarding proposition for long-term investors. The superior performance of the fund has been driven by the smart sector and stock selection strategy followed by the fund management team.
During the market crash of 2020, the performance of the fund was satisfactory, wherein it managed to restrict losses reasonably, whereas it managed to maintain gains in the recent bull phase. SBI Equity Hybrid Fund appears well-equipped to face the market volatility going ahead.
SBI Equity Hybrid Fund is suitable for cautious investors having moderate to high-risk appetite and an investment horizon of at least 3 to 5 years.
This article first appeared on PersonalFN here
