Balanced Funds: Some good, some bad

In a year when stock markets picked up and debt funds had a good run, equity-oriented balanced funds have delivered a mixed performance. They managed an average return of 6.1 per cent in the past one year.

That’s barely above the benchmark for most of these funds, the CRISIL Balanced Fund index. A 60-40 blend of the Nifty and the CRISIL Composite Bond index, it returned 5.3 per cent in this period.Of course, both the equity and debt markets have been a capricious pair this year, often taking unpredictable swings.

Perched at the top In this challenging one-year period, and over longer time frames such as two- and three-years, HDFC Children’s Gift (Investment plan), and two funds from the ICICI stable - Balanced and Balanced Advantage - have consistently featured at the top.

A variety of strategies helped these funds do well in this period; the HDFC Children’s Gift for instance, had a good equity portfolio featuring strong performers, such as Bayer CropScience, TCS, Bata India and Britannia Industries. The fund preferred corporate debentures over government bonds. This translated into higher yields on the debt portfolio, with less volatility resulting from swings in the government securities market. The two ICICI funds also used their flexibility to alter asset allocation well. ICICI Pru Balanced Advantage, for example, pulled equity holding to less than 65 per cent from mid-2012 onwards. The relatively lower equity share thus helped in weathering the volatile equity market. ICICI Pru Balanced recently added to its gilt holdings with signs of interest rates topping out.

Moving up L&T Prudence and SBI Magnum Balanced are two funds which have crawled their way up the ranking charts in the past two years. L&T Prudence again scored by holding high cash, especially mid-year when both debt and equity markets witnessed wild swings. On the other hand, while it had a high 70 per cent-plus equity holding, good stock picks, such as CEAT, eClerx Services, L&T and Shriram City Union helped SBI Balanced deliver good returns.

The fund also invested in corporate debt in the second half of this year, to benefit from higher yields as interest rates rose. JM Balanced is another fund that has sharply improved performance in the past one year, moving from a mid-quartile fund to the top quartile, helped mostly by a focus on short-term debt.

Those that slipped in performance this year include HDFC Prudence, Canara Robeco Balanced, Principal Balanced, and Tata Balanced.

At the bottom Two funds that have languished at the bottom of the pile in recent times are DSP BR Balanced and Escorts Balanced. Equity bets that delivered poor returns, such as SKS Microfinance and Hindalco, hurt the fund.

A similar problem plagued the Escorts Balanced fund, whose calls on poor performers such as Goodyear India, Cox & Kings and Sundaram Fasteners in a highly concentrated portfolio hurt performance.

COMMENT NOW