Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed ICICI Prudential Balanced Advantage Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

ICICI Prudential Balanced Advantage Fund is a Balanced Advantage Fund, that dynamically balances investments in both equity and debt to provide growth alongside stability. Its focus on long-term investments and prudent risk management approach has resulted in remarkable returns for investors.

What is the growth of Rs 10,000 invested in ICICI Pru Balanced Advantage Fund five years ago?

Past performance is not an indicator of future returns
Data as of April 24, 2024
(Source: ACE MF, data collated by PersonalFN) 

ICICI Prudential Balanced Advantage Fund stands as one of the longest-standing schemes in its category, boasting a track record spanning over 17 years. Categorised as a Balanced Advantage Fund, ICICI Prudential Balanced Advantage Fund dynamically manages its allocation between equity and debt to offer investors the benefit of portfolio rebalancing in line with the dynamic market conditions. It uses an in-house model to assess the valuations and decide the equity level in the portfolio. However, the fund maintains an equity allocation of a minimum of 65% at all points in time to retain the status of equity taxation.

In case the equity valuations move up, the fund achieves the desired equity level with the help of derivatives. ICICI Prudential Balanced Advantage Fund also actively manages the debt portion to offer a cushion against phases of intense market volatility. Despite witnessing bouts of underperformance in the short term, ICICI Prudential Balanced Advantage Fund holds a commendable long-term performance of outpacing most of its peers. Consequently, the fund’s corpus has increased manifold over the years, making it the second-largest scheme in the category having an AUM of Rs 56,175 crore as of March 2024.

The fund’s strategy of maintaining a diverse portfolio spread across equity and debt segments and backed by strong processes led by an experienced fund management team, has worked in its favour. In the last 5 years, ICICI Prudential Balanced Advantage Fund has grown at a CAGR of 13.4% compared to a growth of 14.3% in the CRISIL Hybrid 35+65 Aggressive index. An investment of Rs 10,000 in the fund five years ago would now be worth Rs 18,795, whereas a simultaneous investment in the index would have now appreciated to Rs 19,491.

How has ICICI Pru Balanced Advantage Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
HDFC Balanced Advantage Fund	79,875	28.13	21.15	27.13	16.85	15.28	10.68	0.50
Baroda BNP Paribas Balanced Advantage Fund	3,784	19.42	11.87	16.09	16.58	—	9.30	0.28
Tata Balanced Adv Fund	8,943	16.45	11.54	15.53	14.81	—	6.49	0.37
ICICI Pru Balanced Advantage Fund	56,175	15.11	11.41	15.21	12.33	11.85	5.30	0.43
Nippon India Balanced Advantage Fund	7,719	15.74	10.57	15.14	11.78	11.88	7.02	0.34
Aditya Birla SL Balanced Advantage Fund	7,062	15.74	9.89	14.59	11.90	11.15	6.96	0.29
Kotak Balanced Advantage Fund	15,721	14.91	9.89	13.39	12.49	—	6.14	0.29
Bank of India Balanced Advantage Fund	122	16.28	14.44	13.35	7.98	7.50	12.05	0.22
Axis Balanced Advantage Fund	2,103	16.77	9.48	12.99	10.12	—	7.94	0.29
ITI Balanced Advantage Fund	340	16.32	8.49	12.85	—	—	8.15	0.29
CRISIL Hybrid 35+65 – Aggressive Index		15.97	9.80	15.71	13.03	12.59	9.49	0.24

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of April 24, 2024
(Source: ACE MF, data collated by PersonalFN)
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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

In previous years, ICICI Prudential Balanced Advantage Fund consistently outperformed many peers within the Balanced Advantage Fund category, often by a significant margin. However, its performance lagged behind several prominent peers over the last 1-year period, impacting its returns. Nonetheless, ICICI Prudential Balanced Advantage Fund maintains commendable long-term performance. Over extended 5-year and 7-year periods, it consistently ranks among the top quartile performers in the category and closely mirrors the CRISIL Hybrid 35+65 Aggressive index.

Moreover, ICICI Prudential Balanced Advantage Fund distinguishes itself with superior risk-adjusted returns, demonstrating notably lower volatility compared to peers and the CRISIL Hybrid 35+65 Aggressive index. Additionally, its Sharpe Ratio (0.43) stands out as one of the best in the category, exceeding that of the index.

[Read: Why Balanced Advantage Funds Make Sense in the Current Volatile Market Conditions]

What is the investment strategy of ICICI Pru Balanced Advantage Fund?

ICICI Prudential Balanced Advantage Fund dynamically allocates its net assets to equity and equity-related securities and debt instruments depending on various factors such as economic scenarios, global events, market valuations, interest rate movement, etc. The fund typically maintains equity exposure between 65-100%, though the net equity exposure can be brought down below 65% through various derivative strategies for hedging/portfolio rebalancing purpose.

For the equity portion, the scheme follows the top-down approach to identify growth sectors and the bottom-up approach to identify individual stocks. It focuses on companies growing at a rapid pace but are available at attractive valuations. For the debt portion, the fund invests in securities issued by the government, public sector undertakings, and private companies with an aim to generate accrual income and potential capital appreciation.

What are the top portfolio holdings in ICICI Pru Balanced Advantage Fund?

Holding in (%) as of March 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

As of March 31, 2024, ICICI Prudential Balanced Advantage Fund allocated about 68% of its assets in equities. The fund held 88 stocks in its portfolio with the top 10 holdings accounted for nearly 32.4% of its total assets. ICICI Prudential Balanced Advantage Fund has higher allocation to bluechips such as ICICI Bank, TVS Motor Company, Maruti Suzuki India, HDFC Bank, and Infosys. The fund has capped allocation in each stock to under 5%. It holds most of its stocks with a long-term view and accordingly, the fund usually records a low portfolio turnover of around 15-30%.

In the last two years, ICICI Prudential Balanced Advantage Fund has benefited the most from its holdings in TVS Motor Company, ICICI Bank, Mahindra & Mahindra, and NTPC that collectively contributed about 11% to its absolute gains. The fund has also gained from its exposure to Bharti Airtel, L&T, SBI, ONGC, Maruti Suzuki India, ITC, Sun Pharma, Axis Bank, and Reliance Industries, among many others. Meanwhile, it booked profits in NCC, Avanti Feeds, Oil India, NHPC, Jio Financial Services, HDFC AMC, Chambal Fertilisers, Exide Industries, Torrent Pharma, Hindustan Aeronautics, Tata Communications, and Sundaram Finance, among others.

ICICI Prudential Balanced Advantage Fund’s portfolio is skewed towards Cyclical with reasonable exposure to Defensive and Sensitive sectors. Currently, the fund has a preference for holdings in the Banking and Auto sectors, constituting a combined allocation of around 23.4%. The fund also holds substantial exposure to Consumption, Infotech, Finance, Pharma, Retail, and Petroleum having allocation in the range of 3-7%. The top 5 sectors account for about 41.7% of its assets.

ICICI Prudential Balanced Advantage Fund currently holds allocation of around 24.7% in debt instruments. Its portfolio comprises moderate to high rated debt instruments along with minor allocation to low rated instruments. The fund currently holds predominant exposure to long duration Sovereign rated G-Secs and treasury bills (16.2%) and low to high-rated Corporate Debt Instruments (8.1%). The average maturity of the debt portfolio is currently around 5.5 years which makes it moderately sensitive to interest rate changes.

Is ICICI Pru Balanced Advantage Fund suitable for my investment goals and risk tolerance?

Despite instances of short-term underperformance, ICICI Prudential Balanced Advantage Fund has demonstrated an impressive performance over longer time periods. Its focus on long-term investments and prudent risk management strategies enables it to generate competitive returns, rewarding investors who aim to stay invested in the fund with a long-term horizon. The fund has achieved this without exposing the portfolio to excess risk.

While ICICI Prudential Balanced Advantage Fund usually leans towards large-cap stocks, it possesses the flexibility to alter its market capitalisation allocation within the portfolio according to segment valuations and prevailing market conditions. Within the fund’s debt portfolio, a significant portion is dedicated to highly liquid sovereign-rated G-Secs, supplemented by allocations to moderate to high-rated corporate debt instruments, and a minor portion to lower-rated instruments.

ICICI Prudential Balanced Advantage Fund is suitable for investors looking for a reliable performer within the Balanced Advantage Fund category and having an investment horizon of at least 3-5 years.

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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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here