SBI Equity Hybrid Fund: Balancing Growth and Stability

Jul 09, 2020

Aggressive hybrid funds offer the benefit of diversification across equity and debt. With predominant allocation to equities, these funds can push up your overall returns during euphoric market phases. On the other hand, significant allocation to debt can, to an extent, protect you from the extreme adversities of the equity markets.

Thus aggressive hybrid funds are well placed to provide long term capital appreciation with an element of stability for cautious investors. A tactical asset allocation towards aggressive hybrid fund can prove advantageous in pushing up your portfolio gains at a reasonable risk.

Do note that the ability of the fund to generate decent returns at a relatively lower risk depends mainly on the way the fund manager handles the construction of portfolio for both equity and debt portion.

SBI Equity Hybrid Fund (SEHF) is one such aggressive hybrid fund that invests in a diversified portfolio of equities of high growth companies and balances the risk through investing the rest in fixed income securities.

Graph 1: Growth of Rs 10,000 if invested in SBI Equity Hybrid Fund 5 years ago

SEHF has generated a healthy compounded return of 14.8% CAGR, since its inception in December 1995. However, the journey of the fund has not been smooth; it has witnessed bouts of prolonged underperformance as well. Nevertheless, the fund rewarded investors who were patient and gave sufficient time to their investment. SEHF has stood strong in the recent market correction, which has also helped improve its longer performance track record. Rs 10,000 invested in SEHF five years back would have by now appreciated to Rs 14,787, a growth of 8.14% CAGR which is largely in line with 8.07% generated by the benchmark CRISIL Hybrid 35+65 - Aggressive Index.

 
Graph 1
Data as on July 08, 2020
(Source: ACE MF)
 

Table: SBI Equity Hybrid Fund's performance vis-à-vis  category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
BNP Paribas Equity Hybrid Fund 387 6.64 8.26 7.86 NA NA 14.31 0.042
Canara Rob Equity Hybrid Fund 2,884 4.95 6.57 7.32 9.07 14.64 13.91 0.030
Mirae Asset Hybrid Equity Fund 3,274 0.61 5.94 6.98 NA NA 16.00 0.027
SBI Equity Hybrid Fund 28,583 -0.11 4.52 6.29 8.13 14.30 15.24 0.016
Sundaram Equity Hybrid Fund 1,514 -1.29 2.87 5.82 7.82 10.21 15.74 0.008
DSP Equity & Bond Fund 5,406 3.74 4.77 5.20 8.36 13.73 16.67 0.001
ICICI Pru Equity & Debt Fund 17,423 -5.82 1.49 2.79 7.56 13.54 16.74 -0.035
Franklin India Equity Hybrid Fund 1,319 -4.97 0.43 2.61 5.77 12.25 15.31 -0.049
Kotak Equity Hybrid Fund 1,132 -2.31 1.69 2.23 6.80 10.47 18.07 -0.044
HDFC Hybrid Equity Fund 15,747 -6.45 0.71 2.01 7.18 14.23 15.68 -0.047
CRISIL Hybrid 35+65 - Aggressive Index 2.31 5.24 6.09 8.08 11.10 13.82 0.003
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on July 08, 2020
(Source: ACE MF)
*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. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

SEHF has shown a stellar performance across time periods and has outperformed many of its peers in the aggressive hybrid funds category. The fund's short term performance of up to three years has been satisfactory; it generated a lead of around 4 percentage points over the category average. Over longer period of 7 years, it has clearly outperformed the benchmark and category average by a noticeable margin of close to 3 percentage points.

SEHF has shown a fair level of stability. Its standard deviation of 14.30 signifies that the fund's volatility has been higher than the benchmark (11.10), but well below the category average (16.88). Its Risk Adjusted Return (Sharpe Ratio) of 0.016 is superior than its benchmark and most category peers.

Investment strategy of SBI Equity Hybrid Fund

SEHF aims to provide investors with opportunities for long-term capital appreciation along with liquidity of an open-ended scheme by investing in a mix of debt and equity. Accordingly, the fund invests minimum 65% of its assets in equity and equity related instruments, while it has the leeway to allocate 20%-35% of its assets in debt and money market instruments at any point of time. The fund has a large cap bias where it allocates 50-60% of its assets; whereas 15-20% of its assets is diversified across mid and small caps.

SEHF holds a diversified portfolio of stocks of high growth companies and balances the risk through investing the rest in moderate to high rated fixed income securities. The fund manager follows bottom-up approach to stock-picking and is selective while choosing companies for the portfolio.

On the debt front, the fund diversifies its portfolio across range of moderate to high rated instruments of medium to longer maturity. The average maturity and duration of its portfolio is usually in the range of 3-7 years, and is based on the fund manager's outlook on the macros and direction of interest rate.

Graph 2: Top portfolio holdings in SBI Equity Hybrid Fund

Graph 2 Graph 2
Holding in (%) as on May 31, 2020
(Source: ACE MF)

As on May 31, 2020, SEHF held a fairly diversified portfolio of around 55 stocks spread across market caps. Top banking names like HDFC Bank, State Bank of India, ICICI Bank, and Axis Bank figured among its top 10 holdings. Bharti Airtel, Divi's Laboratories, Infosys, ITC, Shree Cement, and BPCL stood among the other prominent names in the portfolio.

Over the last two years, SEHF has benefited from its holdings in Divi's Laboratories, Bharti Airtel, Info Edge (India), ICICI Bank, Infosys, etc. While the fund manager booked substantial profits in TCS, Bajaj Holdings & Investment, Asian Paints, etc., stocks like SBI, Lemon Tree Hotels, Sundaram-Clayton, HDFC Bank, eClerx Services, etc., dragged down the returns of the fund.

SEHF's portfolio is spread across a range of sectors, with major concentration to Banks (14.9%) and Finance (7.1%). Pharma, Petroleum, Engineering, Infotech, and Telecom follow behind with an allocation of around 4% to 7%, respectively. Cement, Power and Transportation have been the other prominent sectors in the fund's portfolio.

On the debt front, the fund held around 16% of its assets in moderate to high rated corporate debt instruments, while around 9% of its portfolio was invested in sovereign rated G-secs. The fund usually maintains a high quality debt portfolio, with an average maturity of around six years, which makes it moderately sensitive to interest rate changes.

Suitability

SEHF has delivered promising returns over longer time periods and has turned out to be a rewarding proposition for investors. The superior performance of the fund has been driven by the smart sector and stock selection strategy followed by the fund management team. Even in the recent corrective phase, the performance of the fund has been satisfactory, where it has managed to restrict losses reasonably. However, given the dominant exposure to equities, risk of capital erosion cannot be ruled out. This makes SEHF suitable for investors with moderately-high risk appetite and a long term investment horizon of at least five years.

Warm Regards,
Divya Grover
Research Analyst
 

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

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.

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds

 

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.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  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;

  12. Suresh Lulla;

  13. I V Subramaniam.

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
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  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

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

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

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, 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




Add Comments