Mutual Funds

ICICI Pru Balanced: Smart moves in sync with markets

Parvatha Vardhini C | Updated on January 11, 2018

PO10_spot_ICICI

Thanks to deft balancing of allocation and sector calls, the fund has outshone peers

With the markets perched on a peak, investors wary of taking risks can go for equity-oriented balanced funds. These funds take at least 65 per cent exposure to equities, giving ample opportunity to cash in on any further upside in the market.

At the same time, a 35 per cent debt exposure cushions downside in case of any volatility or a market fall.

In this category, ICICI Pru Balanced is a good fund to opt for. Over one-, three- and five-year periods, the fund has fared better than peers such as Tata Balanced and Franklin Balanced. Its returns are on par with or better than well-established diversified equity funds such as Franklin Prima Plus and Birla Sun Life Frontline Equity.

The fund predominantly invests in large-caps on the equity side to stay safe. It restricts mid- and small-cap stocks at 5-10 per cent of its equity holdings, even during secular rallies.

It compensates for this low-risk approach by taking a bit of risk on the debt side. Here, it invests in slightly lower rated bonds (those with A, A+, AA-, AA ratings, for instance) for higher returns.

The fund exhibits an ability to read market direction well. In 2014, the fund rightly increased exposure to long-term government securities and raked in good gains on the debt side, as bond prices rallied during this period.

In the last few months, considering the rising markets, equity exposures have been brought down to 65-68 per cent, from 70-75 per cent since late 2015. By deft asset allocation and sector calls, be it in the volatile markets of 2013, 2015 and 2016, or the rally of 2014, Pru Balanced has outperformed the Sensex and Nifty 50 as well as the broader market indices.

Portfolio choices

While its top sector choice is usually banks, the fund juggles its sectors well, according to the flavour of the season. Thus, while the cyclical auto/auto ancillaries was favoured in the 2014 rally, the spotlight turned to capital goods in 2015 and power and petroleum products in 2016.

Given the continuing woes in the banking sector, the allocation has come down to 10 per cent here from 14 per cent in the beginning of 2017. The fund has pruned holdings across HDFC Bank, ICICI Bank and SBI.

The headwinds in the software space have also seen allocations come down from 9 per cent in January 2017, to 5 per cent now. Probably as a defensive bet, it has added a bit to its holdings in the pharma and consumer non-durables space. Thanks to the push to affordable housing, latest entrants to the portfolio include Ambuja Cement, Prism Cement and Asian Paints.

On the debt side, NCD holdings have been increasing gradually since mid-2016. This now constitutes 15.6 per cent of the debt portfolio as against 4.8 per cent a year ago. The fund predominantly holds AA /AA+/AA- rated NCDs of Hindalco, Tata Steel, Vedanta, SBI , IndusInd bank, and an A rated NCD from IDBI Bank.

Published on July 08, 2017

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