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JM Balanced Fund

Wrong timing, but...

Aarati Krishnan

BL Research Bureau

ONE of the first open-end balanced funds to debut in the market _ the JM Balanced Fund _ has had a mixed track record of performance. After performing quite well in the initial years, the performance slackened in 1998 and again picked up in 1999. Since i nception, the scheme has turned in a compounded annual return of around 13 per cent and has offered both a growth and a dividend plan since inception. Portfolios of the two plans were separately disclosed until the first quarter of 1999, after which the fund discontinued this practice. It now discloses a single portfolio for both plans put together.

The returns on JM Balanced Fund have been less impressive than competitors such as The Alliance 95 Fund and Magnum Open End Fund, which started operations soon after this scheme. This is on account of two factors. For most of its tenure, the fund has not been as aggressively invested in equities as the others. And it remained invested in cyclicals until end-1998, by which time the stock market focus had already switched to growth stocks.

A The debt-equity mix in the scheme has undergone a gradual transformation over the past two years. The equity component in the scheme has risen steadily. The scheme, which was invested 35:65 in equities and debt in March 1998, moved to a 43:57 equity:de bt mix by December 1998. In 1999, the scheme further restructured its portfolio to enhance equity exposures. By December 1999, it was invested just over 61 per cent in equities and the balance in debt.

A The debt portfolio, which remained more or less unchanged over 1998, underwent a significant change in 1999. The portfolio earlier featured several unlisted entities such as Corbel Estate (Mahindra & Mahindra group) and Oscar Biotech (a Ranbaxy affilia te). By 1999, these had exited the portfolio to be replaced by debentures from Telco, Titan and Reliance Petroleum. The debt portfolio has seen limited churning in recent months.

A The equity portfolio was heavily weighted in cyclicals in 1998. This appears to be the reason for the slowdown in the performance of the fund over 1998. Among the cyclicals, stocks of PSUs such as HPCL and Madras Refineries were among the top exposures .

A Even by end-1998, when several equity-oriented funds had already built-up substantial exposures to `growth' stocks, the JM Balanced Fund retained a predominantly cyclical focus. By December 1998, automobiles (25 per cent of net assets), banks (9.5 per cent), finance (12 per cent) were among the major sectoral exposures.

A By March 1999, the portfolio acquired a heavy software tilt, with weightage to the sector at 41 per cent. Pharmaceutical stocks followed, with a 21 per cent weight in net assets.

A The top equity holdings underwent considerable churning between December 1998 and March 1999. During this period, Satyam Computer graduated to top holding, replacing Corporation Bank. NIIT, Digital and Fujitsu ICIM also made it to the top 10 holdings, replacing some long-standing holdings such as HPCL, Concor, MTNL.

A The fund made a relatively late entry into software stocks. However, the phenomenal appreciation in these stocks in the period since June 1999 has helped the fund perk up its performance despite its late entry.

A In the last quarter of 1999, the fund participated quite substantially in the new software IPOs. Hughes Software was the top holding in the November portfolio, HCL Technologies was also added.

A Software (50 per cent of assets), FMCG (16 per cent) and pharmaceuticals (12 per cent) are the predominant exposures in the fund's latest portfolio. Exposures in cyclical stocks _ aluminium (4 per cent), cement (3 per cent) and telecom (3 per cent) are limited.

A The JM Balanced Fund has not consistently got its timing right. But there are two positive factors that emerge from an examination of the fund's portfolio. First, the equity portfolio has consistently been invested in stocks of companies with good mana gement quality. Second, excessive exposures to individual stocks have been avoided. Given the small size of the fund and the flexibility it offers, the fund should turn in a reasonable long-term performance.