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

HDFC Balanced Advantage Fund is the oldest and most esteemed Balanced Advantage Fund that has substantially outperformed over longer periods, offering above-average returns. Its core strategy revolves around identifying high-conviction opportunities across both equity and debt segments.

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

Past performance is not an indicator of future returns
Data as of May 21, 2024
(Source: ACE MF, data collated by PersonalFN) 

Launched in February 1994, HDFC Balanced Advantage Fund is the largest scheme not just in the Balanced Advantage Fund category but also across equity-oriented mutual funds. Formerly recognised as the HDFC Prudence Fund, it underwent a merger with the HDFC Growth Fund in 2018 to establish HDFC Balanced Advantage Fund. Despite this transition, there were no substantial alterations to its investment approach.

Positioned within the Balanced Advantage Fund category, HDFC Balanced Advantage Fund retains the flexibility to dynamically distribute its assets between equity and debt. However, it consistently maintains an equity-centric portfolio to provide investors with the advantage of equity taxation.

The fund has gained popularity by registering strong growth in capital over the years. Much of its success can be attributed to the leadership of its former star fund manager, Mr Prashant Jain, renowned for his high-conviction stock picks. Notably, HDFC Balanced Advantage Fund witnessed a rough phase between 2018 and 2020 wherein its performance slipped to the third quartile as its strategy of focusing on value-oriented bets moved out of favour. Nonetheless, the fund’s performance has significantly improved in recent years, helping it reclaim its spot among the category outperformers.

HDFC Balanced Advantage Fund is known for its ability to capitalise well on market rallies and generate superior risk-adjusted returns for its investors. Over the last five years, HDFC Balanced Advantage Fund has delivered a decent performance, growing at a CAGR of 19.9%, thereby managing to outpace the 14.7% CAGR delivered by the CRISIL Hybrid 35+65 – Aggressive index. An investment of Rs 10,000 invested in HDFC Balanced Advantage Fund 5 years back would have appreciated to Rs 24,625. A simultaneous investment in the CRISIL Hybrid 35+65 – Aggressive index would now have been valued at Rs 19,799.

How has HDFC 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	83,549	29.70	21.83	26.83	17.31	15.36	10.56	0.50
Baroda BNP Paribas Balanced Advantage Fund	3,805	20.54	12.53	15.78	16.65	—	9.32	0.29
Tata Balanced Adv Fund	9,107	17.33	11.94	15.26	14.81	—	6.50	0.36
Nippon India Balanced Advantage Fund	7,928	16.84	11.12	14.89	12.04	11.84	7.02	0.34
ICICI Pru Balanced Advantage Fund	56,709	15.91	11.79	14.81	12.56	11.88	5.29	0.41
Aditya Birla SL Balanced Advantage Fund	7,192	16.59	10.38	14.19	12.15	11.10	6.96	0.29
Axis Balanced Advantage Fund	2,124	18.07	10.08	13.05	10.42	—	7.96	0.29
Kotak Balanced Advantage Fund	15,844	15.54	10.30	12.99	12.55	—	6.15	0.29
Bandhan Balanced Advantage Fund	2,229	15.18	8.09	11.46	10.79	10.38	7.74	0.20
HSBC Balanced Advantage Fund	1,422	16.97	9.89	10.90	10.22	9.63	5.99	0.27
CRISIL Hybrid 35+65 – Aggressive Index		17.08	10.28	15.31	13.29	12.63	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 May 21, 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.

HDFC Balanced Advantage Fund has a track record of surpassing its peers and the CRISIL Hybrid 35+65 Aggressive index by a significant margin. However, the fund faced a period of underperformance between 2018 and early 2020, during which it trailed both the index and many of its category peers. Nonetheless, the fund staged a strong comeback as the market began to trend upward in the latter half of 2020.

On a rolling return basis, in the last 1-year, 2-year, and 3-year periods, HDFC Balanced Advantage Fund has done significantly better than the CRISIL Hybrid 35+65 Aggressive index and most of its peers, outpacing them by a noticeable margin. The considerable improvement in the performance of the fund in recent years has improved its overall track record. It now stands as a category topper across time frames.

In terms of risk-reward, the volatility registered by HDFC Balanced Advantage Fund is higher than the benchmark and many of its peers. However, with the recent outperformance, the fund has fared exceptionally well in terms of risk-adjusted return, as denoted by the Sharpe ratio, which is currently the best in the category and much ahead of the index.

What is the investment strategy of HDFC Balanced Advantage Fund?

Being a Balanced Advantage Fund, HDFC Balanced Advantage Fund aims to invest in a mix of equity and debt instruments by following a dynamic investment strategy while maintaining a minimum exposure of 65% in equities.

For the equity portion, HDFC Balanced Advantage Fund aims to build a portfolio of companies diversified across major industries, economic sectors, and market capitalisation, that offer an acceptable risk-reward balance. It selects stocks based on the troika (set of three key factors) of quality assessment, earnings outlook, and valuations. The fund follows the bottom-up approach to identify high-quality growth-oriented stocks for the long term.

For the debt portion, the fund has the flexibility to invest in the entire range of debt and money market instruments spread across credit profiles and tenures. The debt investment is based on credit quality, liquidity, interest rates and their outlook. HDFC Balanced Advantage Fund emphasises safety and liquidity over returns to manage credit risk which is reflected in its substantial exposure to high-rated instruments.

What are the top portfolio holdings in HDFC Balanced Advantage Fund?

Holding in (%) as of April 30, 2024
(Source: ACE MF, data collated by PersonalFN) 

HDFC Balanced Advantage Fund usually allocates around 65-70% of its assets towards equities and around 25-30% towards debt instruments. The fund holds its equity exposure across market caps but with a large cap bias. As of April 30, 2024, HDFC Balanced Advantage Fund held a large portfolio of 157 stocks with the top 10 stocks accounting for 31.8% of its assets.

Most of its equity exposure is concentrated towards the top 20 stocks. Accordingly, the fund has a long tail of over 140 stocks having exposure of less than 1% in each. Large-cap names like HDFC Bank, Coal India, SBI, ICICI Bank, and NTPC currently form part of HDFC Balanced Advantage Fund’s top holdings. Most of these stocks have been among the core holdings in the portfolio for quite a long time.

In the last two years, HDFC Balanced Advantage Fund has benefited immensely from its prominent exposure to stocks like Power Finance Corporation, Coal India, NTPC, REC, SBI, Hindustan Aeronautics, and L&T. The fund also benefitted from its holdings in Apar Industries, ICICI Bank, ITC, Indian Railway Finance Corporation, and Bank of Baroda, among others.

HDFC Balanced Advantage Fund favours Cyclical and Sensitive sectors along with strategic allocation towards Defensives. The fund’s portfolio is inclined towards Banking & Finance that collectively form 23.5% of its assets. Engineering, Power, Petroleum, Infotech, Minerals, Pharma, and Consumption stocks follow with an allocation in the range of 3-9% of its assets.

In terms of debt holdings, HDFC Balanced Advantage Fund mainly focuses on Corporate Debt Instruments with AAA credit ratings, complemented by Sovereign-rated G-Secs. Presently, the fund’s exposure to these assets stands at approximately 11.6% and 15.5%, respectively. HDFC Balanced Advantage Fund adjusts the maturity profile of the debt portion in line with the interest rate outlook which enables it to do well across interest rate cycles. The average maturity of the debt portfolio is currently around 6.2 years which makes it moderately sensitive to interest rate changes.

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

With a history spanning over three decades, HDFC Balanced Advantage Fund has consistently provided investors with returns better than the average, making it a top performer in its category. Though has struggled during market downturns, the fund has shown resilience by bouncing back strongly when markets rise, improving its overall performance record over the long term.

HDFC Balanced Advantage Fund’s equity portfolio is diversified across different market caps, with a focus on large-cap stocks to provide stability and consistent growth. Additionally, the fund strategically incorporates mid and small-cap stocks to enhance overall portfolio returns. Its debt component primarily consists of G-secs, known for their safety and liquidity in secondary markets. The fund also allocates a significant portion to corporate debt instruments with moderate to high ratings. This strategy aims to balance risk and return, ensuring stability and potential for attractive returns in the debt segment of the portfolio.

HDFC Balanced Advantage Fund is well-suited for investors seeking a fund driven by strong conviction across equity and debt and having a long-term 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