HDFC Balanced Advantage Fund: Identifying High-conviction Opportunities Across Equity and Debt Segments

May 23, 2024 / Reading Time: Approx. 10 mins

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HDFC Balanced Advantage Fund

Welcome to  PersonalFN's weekly analysis on diversified equity mutual funds! In this issue, we have analysed HDFC Balanced Advantage Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

HDFC Balanced Advantage Fund is the oldest and most esteemed Balanced Advantage Fund that has substantially outperformed over longer periods, offering above-average returns. Its core strategy revolves around identifying high-conviction opportunities across both equity and debt segments.

What is the growth of Rs 10,000 invested in HDFC Balanced Advantage Fund five years ago?

Past performance is not an indicator of future returns
Data as of May 21, 2024
(Source: ACE MF, data collated by PersonalFN)
 

Launched in February 1994, HDFC Balanced Advantage Fund is the largest scheme not just in the Balanced Advantage Fund category but also across equity-oriented mutual funds. Formerly recognised as the HDFC Prudence Fund, it underwent a merger with the HDFC Growth Fund in 2018 to establish HDFC Balanced Advantage Fund. Despite this transition, there were no substantial alterations to its investment approach.

Positioned within the Balanced Advantage Fund category, HDFC Balanced Advantage Fund retains the flexibility to dynamically distribute its assets between equity and debt. However, it consistently maintains an equity-centric portfolio to provide investors with the advantage of equity taxation.

The fund has gained popularity by registering strong growth in capital over the years. Much of its success can be attributed to the leadership of its former star fund manager, Mr Prashant Jain, renowned for his high-conviction stock picks. Notably, HDFC Balanced Advantage Fund witnessed a rough phase between 2018 and 2020 wherein its performance slipped to the third quartile as its strategy of focusing on value-oriented bets moved out of favour. Nonetheless, the fund's performance has significantly improved in recent years, helping it reclaim its spot among the category outperformers.

HDFC Balanced Advantage Fund is known for its ability to capitalise well on market rallies and generate superior risk-adjusted returns for its investors. Over the last five years, HDFC Balanced Advantage Fund has delivered a decent performance, growing at a CAGR of 19.9%, thereby managing to outpace the 14.7% CAGR delivered by the CRISIL Hybrid 35+65 - Aggressive index. An investment of Rs 10,000 invested in HDFC Balanced Advantage Fund 5 years back would have appreciated to Rs 24,625. A simultaneous investment in the CRISIL Hybrid 35+65 - Aggressive index would now have been valued at Rs 19,799.

How has HDFC Balanced Advantage Fund performed on a rolling return basis?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
HDFC Balanced Advantage Fund 83,549 29.70 21.83 26.83 17.31 15.36 10.56 0.50
Baroda BNP Paribas Balanced Advantage Fund 3,805 20.54 12.53 15.78 16.65 -- 9.32 0.29
Tata Balanced Adv Fund 9,107 17.33 11.94 15.26 14.81 -- 6.50 0.36
Nippon India Balanced Advantage Fund 7,928 16.84 11.12 14.89 12.04 11.84 7.02 0.34
ICICI Pru Balanced Advantage Fund 56,709 15.91 11.79 14.81 12.56 11.88 5.29 0.41
Aditya Birla SL Balanced Advantage Fund 7,192 16.59 10.38 14.19 12.15 11.10 6.96 0.29
Axis Balanced Advantage Fund 2,124 18.07 10.08 13.05 10.42 -- 7.96 0.29
Kotak Balanced Advantage Fund 15,844 15.54 10.30 12.99 12.55 -- 6.15 0.29
Bandhan Balanced Advantage Fund 2,229 15.18 8.09 11.46 10.79 10.38 7.74 0.20
HSBC Balanced Advantage Fund 1,422 16.97 9.89 10.90 10.22 9.63 5.99 0.27
CRISIL Hybrid 35+65 - Aggressive Index 17.08 10.28 15.31 13.29 12.63 9.49 0.24
The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of May 21, 2024
(Source: ACE MF, data collated by PersonalFN)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

HDFC Balanced Advantage Fund has a track record of surpassing its peers and the CRISIL Hybrid 35+65 Aggressive index by a significant margin. However, the fund faced a period of underperformance between 2018 and early 2020, during which it trailed both the index and many of its category peers. Nonetheless, the fund staged a strong comeback as the market began to trend upward in the latter half of 2020.

On a rolling return basis, in the last 1-year, 2-year, and 3-year periods, HDFC Balanced Advantage Fund has done significantly better than the CRISIL Hybrid 35+65 Aggressive index and most of its peers, outpacing them by a noticeable margin. The considerable improvement in the performance of the fund in recent years has improved its overall track record. It now stands as a category topper across time frames.

In terms of risk-reward, the volatility registered by HDFC Balanced Advantage Fund is higher than the benchmark and many of its peers. However, with the recent outperformance, the fund has fared exceptionally well in terms of risk-adjusted return, as denoted by the Sharpe ratio, which is currently the best in the category and much ahead of the index.

What is the investment strategy of HDFC Balanced Advantage Fund?

Being a Balanced Advantage Fund, HDFC Balanced Advantage Fund aims to invest in a mix of equity and debt instruments by following a dynamic investment strategy while maintaining a minimum exposure of 65% in equities.

For the equity portion, HDFC Balanced Advantage Fund aims to build a portfolio of companies diversified across major industries, economic sectors, and market capitalisation, that offer an acceptable risk-reward balance. It selects stocks based on the troika (set of three key factors) of quality assessment, earnings outlook, and valuations. The fund follows the bottom-up approach to identify high-quality growth-oriented stocks for the long term.

For the debt portion, the fund has the flexibility to invest in the entire range of debt and money market instruments spread across credit profiles and tenures. The debt investment is based on credit quality, liquidity, interest rates and their outlook. HDFC Balanced Advantage Fund emphasises safety and liquidity over returns to manage credit risk which is reflected in its substantial exposure to high-rated instruments.

What are the top portfolio holdings in HDFC Balanced Advantage Fund?

Graph 2 Graph 2
Holding in (%) as of April 30, 2024
(Source: ACE MF, data collated by PersonalFN)
 

HDFC Balanced Advantage Fund usually allocates around 65-70% of its assets towards equities and around 25-30% towards debt instruments. The fund holds its equity exposure across market caps but with a large cap bias. As of April 30, 2024, HDFC Balanced Advantage Fund held a large portfolio of 157 stocks with the top 10 stocks accounting for 31.8% of its assets.

Most of its equity exposure is concentrated towards the top 20 stocks. Accordingly, the fund has a long tail of over 140 stocks having exposure of less than 1% in each. Large-cap names like HDFC Bank, Coal India, SBI, ICICI Bank, and NTPC currently form part of HDFC Balanced Advantage Fund's top holdings. Most of these stocks have been among the core holdings in the portfolio for quite a long time.

In the last two years, HDFC Balanced Advantage Fund has benefited immensely from its prominent exposure to stocks like Power Finance Corporation, Coal India, NTPC, REC, SBI, Hindustan Aeronautics, and L&T. The fund also benefitted from its holdings in Apar Industries, ICICI Bank, ITC, Indian Railway Finance Corporation, and Bank of Baroda, among others.

HDFC Balanced Advantage Fund favours Cyclical and Sensitive sectors along with strategic allocation towards Defensives. The fund's portfolio is inclined towards Banking & Finance that collectively form 23.5% of its assets. Engineering, Power, Petroleum, Infotech, Minerals, Pharma, and Consumption stocks follow with an allocation in the range of 3-9% of its assets.

In terms of debt holdings, HDFC Balanced Advantage Fund mainly focuses on Corporate Debt Instruments with AAA credit ratings, complemented by Sovereign-rated G-Secs. Presently, the fund's exposure to these assets stands at approximately 11.6% and 15.5%, respectively. HDFC Balanced Advantage Fund adjusts the maturity profile of the debt portion in line with the interest rate outlook which enables it to do well across interest rate cycles. The average maturity of the debt portfolio is currently around 6.2 years which makes it moderately sensitive to interest rate changes.

Is HDFC Balanced Advantage Fund suitable for my investment goals and risk tolerance?

With a history spanning over three decades, HDFC Balanced Advantage Fund has consistently provided investors with returns better than the average, making it a top performer in its category. Though has struggled during market downturns, the fund has shown resilience by bouncing back strongly when markets rise, improving its overall performance record over the long term.

HDFC Balanced Advantage Fund's equity portfolio is diversified across different market caps, with a focus on large-cap stocks to provide stability and consistent growth. Additionally, the fund strategically incorporates mid and small-cap stocks to enhance overall portfolio returns. Its debt component primarily consists of G-secs, known for their safety and liquidity in secondary markets. The fund also allocates a significant portion to corporate debt instruments with moderate to high ratings. This strategy aims to balance risk and return, ensuring stability and potential for attractive returns in the debt segment of the portfolio.

HDFC Balanced Advantage Fund is well-suited for investors seeking a fund driven by strong conviction across equity and debt and having a long-term horizon of at least 3-5 years.

Watch this video to find out the four best mutual fund types for retirement planning:

 

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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Details of associates

  • Group Companies including:

    1. Money Simplified Services Private Limited;

    2. PersonalFN Insurance Services India Private Limited;

    3. Equitymaster Agora Research Private Limited;

    4. Common Sense Living Private Limited;

    5. Quantum Advisors Private Limited;

    6. Quantum Asset Management Company Private Limited;

    7. HelpYourNGO.com India Private Limited;

    8. HelpYourNGO Foundation;

    9. Natural Streets for Performing Arts Foundation;

    10. Primary Real Estate Advisors Private Limited;

    11. HYNGO India Private Limited;

  • Directors of the Company - Suresh Lulla; I V Subramaniam, Murali Ananthan Krishnan and Rafiq Dossani

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
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  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

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  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

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Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

Investment in securities market are subject to market risks, read all scheme related documents carefully.

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