Launched in September 2000, HDFC Balanced Fund is classified under the balanced category of CRISIL Mutual Fund Ranking. It has been ranked in the top 30 percentile (CRISIL Fund Rank 1 or 2) over the past 25 consecutive quarters as of December 2016 (i.e. since December 2009). The fund's primary objective is to generate capital appreciation along with current income from a combined portfolio of equity & equity-related and debt and money market instruments. The fund is managed by Chirag Setalvad. Its quarterly average assets under management stood at Rs 9,284 crore for the March 2017 quarter.
Consistent outperformance
The fund has given superior returns compared to its benchmark (CRISIL Balanced Fund - Aggressive Index) and the category (funds ranked under the balanced category in December 2016 CRISIL Mutual Fund Ranking) across periods.
The fund has weathered many bull and bear phases, and has consistently outperformed its benchmark and the category. After the subprime crisis, the fund returned 55.20 per cent per annum, while the category and the benchmark returned 46.34 per cent and 33.26 per cent, respectively.
An investment of Rs 1,000 in the fund on March 30, 2002 (inception of the benchmark) would have grown to Rs 12,580 (compounded annualised returns of 18.32 per cent) on April 13, 2017. A similar investment in the category and the benchmark would have grown to around Rs 12,953 (18.55 per cent) and Rs 5,888 (12.50 per cent), respectively. Similarly, Rs 1,000 invested per month in the fund in the past 10 years via systematic investment plan (SIP), totaling Rs 1.2 lakh, would have grown to Rs 2,93,490 by April 13, 2017 at 17.18 per cent annualised returns. In comparison, a similar amount invested in the benchmark would have returned Rs 1,96,963 at 9.66 per cent.
Portfolio analysis
In the equity part of the portfolio, the fund had exposure to 60 stocks across 21 sectors in the past three years.
In this period, the top five sectors, on average, constituted 43.65 per cent of the equity portfolio. The banking sector had the highest exposure of 18.83 per cent, which is also a top contributing sector, followed by software (8.42 per cent), pharmaceuticals (6.44 per cent), oil (5.03 per cent) and finance (4.94 per cent).
High exposure to pharmaceuticals in 2015 improved the fund's returns when the equity market (Nifty 50) slumped during the year. The fund manager, then, rightly reduced the exposure to the sector as it became unprofitable over time. Exposure to petroleum products has gradually increased to 5.65 per cent of the portfolio as of March 2017 and the sector has returned handsomely, justifying the fund manager's choice.
The fund consistently held 38 stocks in the last three years which constituted more than 50 per cent of the portfolio every month. Top holdings among the consistently held stocks include HDFC Bank, with three-year average exposure of 4.12 per cent, Infosys (3.83 per cent), ICICI Bank (3.51 per cent), Reliance Industries (3.24 per cent) and State Bank of India (SBI) (3.08 per cent). HDFC Bank and SBI have been the top contributors. The debt portion is well guarded in terms of asset quality. In the past three years, 80 per cent of the debt portfolio, on average, was exposed to sovereign and highest-rated (AAA/A1+) securities.
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