HDFC Balanced Advantage Fund: Fall from grace
In the last one year, most of the equity dedicated mutual funds have generated negative returns except for some of the sectoral or thematic funds.
In the same period, many debt funds have generated returns in double-digit. In between these two categories, there lies a balanced advantage or dynamic asset allocation category that can invest in either debt or equity, depending upon the market condition. The idea behind such free movement is that it allows the fund manager, flexibility to take asset allocation calls, and give good returns, regardless of market movements. Nonetheless, the experience of the last one year shows that this is not the case. As the average returns generated by these funds in the last one year is less than five per cent.
One of the major reasons for such a bad performance on an average for the category has been due to the underperformance of the biggest funds from this category. HDFC Balanced Advantage fund in the last one year generated negative returns of 9.4 per cent and has remained the worst in its category in all timeframes.
| Return (%) |
3 Month |
6 Month |
1 Year |
3 Year |
5 Year |
10 Year |
| Fund |
13.44 |
-12.18 |
-9.04 |
0.37 |
5.74 |
8.03 |
| Category Average |
12.62 |
-1.04 |
6.46 |
3.77 |
5.89 |
9.13 |
| Rank Within Category |
8 |
20 |
20 |
12 |
9 |
6 |
| Number Of Funds In Category |
22 |
21 |
20 |
13 |
12 |
6 |
| source: rupeevest |
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One of the major reasons for such an under-performance is the fund’s stickiness to equity, which has not performed well in the last couple of years. Analysis of portfolio of fund shows that the fund has steadily maintained equity portion greater than 80 per cent even when the debt was doing good and the fund had the ability to move at least 15 per cent of its corpus to debt without comprising on the tax treatment of the fund. At the end of June 2020, equities constitute 81.4 per cent of the total portfolio and corporate debt holds around 16 per cent.
Even in equities, the fund holds a very conservative portfolio. At the end of June 2020, ICICI Bank, State Bank of India and Larsen & Tour are its top three constituents, forming 22 per cent of the total portfolio. Despite a conservative portfolio, the fund is most volatile in its category, based on last year’s return. The fund has a negative alpha of 10.63 in the last one year.
The fund was once the darling of investors, especially those who wanted regular cash flows. The fund had a very good dividend distribution history and investors invested to get regular pay-outs. Time has changed and now, the fund looks like a pale shadow of its yesteryears.