Targeting the Cautious

This one’s charm depends on what you want out of a hybrid equity-oriented fund. When the market is on a roll, many funds in the category look more impressive. But therein lies its appeal. The fund is strictly for investors who want an equity exposure but prefer peace of mind over flashy returns. According to Radhakrishnan, “The focus is on maintaining an optimum balance between growth and stability. The portfolio will comprise of well-established large caps with a cherry-picking approach to mid and small caps.”

In 2007, when valuations began to get out of hand, the large-cap allocation began to rise. And in the one-year period from July 2007 to June 2008, it hovered at 90 per cent. After that it began to gradually drop. What is evident is that the equity allocation does not fluctuate much, barring a few aberrations here and there. Neither does much of stock churning take place. What’s most apparent are the sector bets: low profile to cyclicals like Metals and Construction, no aggressive exposure to Healthcare or FMCG during market slumps and Financial Services being an all time favourite.

Its distinctive large-cap bias, avoidance of momentum stocks and equity allocation capped at 70 per cent have resulted in this fund having the lowest standard deviation in the category. While this ensures that the fund does not crumble when the bulls retreat, it has resulted in subdued returns during market rallies. In majority of the instances, the fund has delivered close to the category or underperformed marginally, though 2009 was a glaring exception when it delivered just 52.86 per cent (category average: 61.16%). “Our quantitative/ qualitative parameters helped us limit exposure to momentum based stocks and sectors - characterized by high volatility, valuation and governance risks. They were amongst the worst hit during 2008 but rebounded in 2009. Limited exposure to these helped the fund limit declines in 2008, but we did not benefit from the subsequent rally,” says Radhakrishnan.

On debt side, the portfolio’s average maturity has largely been in line with the category but at times it does take a bolder stance. Over the past few months the fund’s maturity profile has not exceeded a year. Debentures and Certificates of Deposit (CDs) account for majority of the debt investments.