Foreign institutional investors have been on a selling spree in the Indian equity markets in recent times. In just the three weeks of October, FIIs sold equities worth $10 billion. The preference for a stimulus-driven China and a rate-cut fuelled US meant that emerging markets such as India – which also is also expensive on the valuation front – are less favoured currently.
Meanwhile, most Central Banks have started the interest rate reduction cycle, even as the RBI seems in no hurry to reduce rates any time soon.
Volatile equities and still-high interest rates mean that investors may now need to play the markets carefully and focus on their asset allocation pattern.
In the aforesaid context, balanced advantage (or dynamic asset allocation) funds are seen as attractive in the current market as they tend to generate risk-adjusted returns and insulate investor portfolios from stiff corrections.
Given that dynamic asset allocation funds take into account factors such as valuations, macros and interest rate movements to juggle between stocks and bonds, apart from using derivatives for hedging, timing of entry is not crucial.
The best funds from the category are also suitable for systematic transfer plans (SWPs) in the case of those seeking to generate periodic cashflows with their invested lump-sum.
SBI Balanced Advantage has recently completed three years since inception and has delivered well over this period. Investors can consider lump-sum or even SIP investments in the fund for the medium to long term.
Steady delivery
In the limited period since its inception, the fund has been consistent in its performance.
When point to point returns over multiple timeframes are taken, SBI Balanced Advantage delivered returns 4.3 per cent over the past three years and 23.9 per cent over the past one year.
Taking one-year rolling returns over August 2021 to October 2024, the fund’s performance has again been healthy. Over this period, its mean one-year rolling return was 16.5 per cent.
On a one-year rolling basis over the above-mentioned period, the fund has always delivered positive returns. SBI Balanced Advantage has given more than 10 per cent returns more than 69 per cent of the time. It has delivered more than 12 per cent over 68.5 per cent of the time over August 2021 to October 2024.
In case retail investors do not have a lump-sum in hand, they can consider SIPs as well. A monthly SIP in the fund for three years would have given a return (XIRR) of 18.6 per cent.
It may also be suitable for moderate risk investors seeking regular income on their lump-sum investments via systematic withdrawal plans (SWPs).
Managing the equity-debt mix
SBI Balanced Advantage fund is quite true-to-label in as far as debt and equity mix is concerned. Both components, especially the debt part is quite actively managed to make the best of the bond market trends.
With increase in volatility in the market, the fund increases the hedged proportion of the portfolio. This used to be 20 per cent or more, earlier, but has been rising.
This proportion has gone up steeply in its recent portfolio, SBI Balanced Advantage holds 34.6 per cent in derivatives.
Overall, the fund seeks to keep the equity portion with derivatives at 65 per cent or higher, which ensures favourable equity taxation.
In as far as the equity portion is concerned, it is dominated by large-cap holdings across market cycle. Stocks are picked from the Nifty 100 index mostly and the weightage of individual firms in the portfolio barring one or two is kept at much less than 5 per cent. Thus, the portfolio is well-diversified and quite diffused. A bit of mid-cap and a tiny portion of small-caps figure in the portfolio to provide a kicker to returns. The equity portion’s risk is kept moderate for most parts.
With respect to the debt portion, the fund takes no credit risk, with bonds of AAA-rated corporates and the sovereign (including States) being the mainstay.
The debt portion’s maturity is also smartly handled by taking duration calls. As interest rates were being raised over 2022-23, the average maturity was kept more at 5-7 years. But after rates peaked early this year and as yields started to drop, the fund has changed the bond mix, which has increased the average maturity of debt securities to 9.65 years currently.
SBI Balanced Advantage has become a reliable investment across market cycles, with only low to modest risks for healthy above-average returns.
Overview
Equity portion with derivatives at 65 per cent or higher
