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Launched in September 2000, HDFC Balanced Fund is an equity-oriented hybrid fund, with average assets under management (AUM) of ~555 crore as of March 2012. The fund has been consistently ranked CRISIL Fund Rank 1 for the past six quarters. The consistency in its rankings highlights a combination of superior risk-adjusted performance and disciplined portfolio management.
Investment style HDFC Balanced Fund seeks to benefit from two asset classes —capital appreciation of equities and stability of fixed income instruments. Balanced funds are treated like equity oriented funds for tax purposes wherein dividends and long term capital gains are tax-free. The scheme is mandated to invest in the proportion of 60 per cent to 80 per cent in equity and the remaining in fixed income securities. During the past three years the fund has maintained an average equity exposure of 68 per cent.
Performance The fund has outperformed its benchmark, CRISIL Balanced Fund Index, and the category average across various timeframes (one, three, five, seven and 10 years). Despite market volatility over the recent three years, the fund has delivered an annualised return of 27 per cent, more than double the benchmark (13 per cent) and well above the average returns delivered by the balanced fund category (18 per cent).
Assuming a minimum holding period of five years in case of balanced funds, based on five-year daily rolling returns, HDFC Balanced Fund has outperformed the benchmark 99 per cent of the time.
Risk attributes (measured by volatility) The fund has delivered higher returns at lower volatility. Over afive-year period, the fund has average volatility of 18 per cent vis-à-vis 20 per cent for the category.
Portfolio analysis Over the past three years, the fund has been managed with a fairly stable equity-debt asset allocation mix. The fund has been investing in the range of 65-71 per cent in equities over this period and the average exposure to equities has been 68 per cent. The fund is neither aggressive nor defensive in its portfolio allocation. Yet, it seeks to moderate risk by dynamically changing allocation between the asset classes. The average exposure to cash and cash equivalents constituted eight per cent of the portfolio over the past three years, thus providing sufficient liquidity.
Within equities, the fund maintains a fairly diversified portfolio. The average number of stocks in the portfolio for the last three years is 32, indicating good stock-wise diversification. At a market capitalisation level, the fund uses a combination of large- and mid-cap stocks in its portfolio. Some of the top holdings that have been retained over the past three years include Reliance Industries, Tata Consultancy Services, Infosys and Axis Bank.
The fund has maintained good credit quality in the debt portion of its portfolio. The average exposure to G-Secs and highest rated papers has been 83 per cent of the debt portfolio over the past three years.
Sector trends Pharmaceuticals, banks, software, auto ancillaries and consumer non-durables have been the most preferred sectors in the fund's portfolio over the last three years with exposure to these sectors at nearly 37 per cent of the equity portfolio. Over the past three years, these sectors have significantly outperformed the S&P CNX Nifty.
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