Fund Call. Tata Balanced Fund: Proved its mettle in bear markets

Investors looking to tide over the volatile market can consider equity-oriented balanced funds that invest a portion of their portfolio in debt. With markets swinging wildly, a dash of debt can help contain the downside and balance out the equity risk.

Tata Balanced Fund, which has generated consistent higher risk adjusted return since its launch, is a good bet.

While the fund’s recent performance has been mediocre compared to peers and the benchmark, the performance over the long run has been noteworthy. The fund’s long-term performance has also been comparable to large-cap diversified equity funds.

The fund is suitable for investors with medium risk profile and an investment time horizon of five years or so.

The fund has not only delivered higher returns during market rallies but also capped losses well during market downturns. During the bear markets of 2011 and 2015, for instance, the fund proved its mettle by outperforming its peers. In the bull phases too (2012 to 2014), it outpaced its peers by a margin of five percentage points. A relatively higher exposure to mid-cap stocks in its equity portfolio, spicing up returns, has helped the fund top the charts.

The fund has maintained a well-balanced portfolio comprising equity and debt with a mix of 73:27 respectively (on an average over the last three years). On the equity side, the fund favours a growth-oriented strategy, following a bottom-up approach while cherry-picking stocks with good earnings growth and strong balance sheets. This has aided its steady performance over the long term. However, this strategy did not play out well in the recent rally, which was led by stocks in sectors such as banks, commodities, etc. The fund held a relatively lower share in these stocks compared to its peers. This led to the fund underperforming its peers during the short-lived rally of 2016. However, the long-term track record has been commendable, with the fund outperforming its category in nine out of 10 years.

The large vs mid and small-caps ratio stood at 77:23 as per the fund’s latest portfolio. Banks (13.3 per cent), software (7.1 per cent) and pharma (7.1 per cent) are the top three sectors. HDFC Bank, Power Grid Corporation and Infosys are the top stocks, with holding in no one stock exceeding 4 per cent.

On the fixed income portfolio, the fund has been aggressively managing its duration calls. This has been only too evident during late 2011, when it shifted the entire allocation to corporate debt and government securities from certificate of deposits. This helped it capitalise from both accrual and duration opportunity during this period. The debt portion currently holds 70 per cent in government securities, indicating the fund manager’s aggressive view on rates. The average maturity and yield to maturity (YTM) is currently at 8.6 years and 6.7 per cent respectively. This should help the fund rake in healthy returns if rates fall hereon.

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