• PAGE ONE
• INDEX
• HOME

DSP Merrill Lynch Balanced Fund -- Offbeat but safe strategy

THE DSP Merrill Lynch Balanced Fund, launched in May 1999, has recorded a holding period return of around 35 per cent in the seven months since inception. This is just about equivalent to the appreciation in the BSE Sensitive Index (Sensex) over the same time frame. For a balanced fund, with a debt component of around 40 per cent, this is a reasonably good performance.

Assuming a benchmark return of around 13 per cent on corporate debt instruments, a balanced benchmark invested 60:40 in equities and debt would have returned around 27 per cent since May 1999. Relative to this benchmark return, the DSP Merrill Lynch Bala nced Fund has not fared badly.

However, its performance has certainly been less impressive than that of some of the other balanced funds which started operations after it did, in 1999. While the net asset value (NAV) of the DSP ML Balanced Fund was 13.51 per unit on January 21, both P rudential ICICI Balanced Fund (launched in July 1999) and Birla Balance (October 1999), fared better.

While Prudential ICICI Balanced Fund has an NAV of Rs. 13.51 per unit, that of Birla Balance is 13.88 per unit. Both have turned in a higher annualised return than the DSP Merrill Lynch Balanced Fund.

There appear to be two factors behind this performance. One, the DSP Balanced Fund opted for a slightly higher debt component in its scheme portfolio than the other two funds. In the initial months, until end June 1999, the scheme was invested over 50 pe r cent in debt instruments, with only the balance in equities.

As of end November 1999, while the DSP Merrill Lynch Balanced Fund was around 65 per cent invested in equities, both the Prudential ICICI Balanced Fund and Birla Balance were invested to the extent of around 70 per cent in equities at end 1999. Second, u nlike the other two funds, the DSP Merrill Lynch Balanced Fund opted to keep its equity portfolio largely invested in non-software stocks.

The fund's exposure to software stocks was limited to 14 per cent of net assets as of November 30, while exposure to software stocks was at 22 per cent for the Prudential ICICI Balanced Fund on the same date, and over 50 per cent for Birla Balance (in it s first disclosed portfolio as on December 30, 1999). The limited exposure to software prevented the DSP Merrill Lynch Balanced Fund from participating fully in the rally in these stocks in the last quarter of 1999, while its counterparts benefited from it earlier.

In fact, the returns from the scheme have unerringly kept pace with those on the Sensex over the past two quarters since its inception.

In end-November 1999, the scheme's equity portfolio

was almost evenly distributed among various sectors. Next to software (which accounted for 14 per cent of net assets), FMCG (10 per cent), pharmaceuticals (9 per cent), engineering (9 per cent) and oil and gas (7 per cent) were the other major sectoral w eightages in the fund's portfolio. As several of these sectors failed to turn in as good a performance as software stocks in the period since September 1999, the scheme's performance has not been as impressive as that of some of its competitors.

In November 1999, the scheme's total exposure in cyclical and economy-sensitive stocks was around 26 per cent of total net assets, which is quite substantial for a balanced fund. Weightages in individual stocks were also kept at restrained levels. In its last full portfolio for September 1999, no single stock accounted for more than 5 per cent of the scheme's total net assets.

The debt portfolio is invested substantially in government securities since June 1999. This is likely to have helped the fund take advantage of the trading opportunities arising from the considerable volatility in the prices of gilts since June 1999.

The scheme's investment strategy, in terms of both its sectoral and individual stock exposures, is quite unconventional in relation to its peers. This makes it a suitable investment for a conservative investor looking to diversify his portfolio. For an i nvestor with a more aggressive orientation, the scheme may be less attractive than some of the other balanced funds in the market.