HDFC Balanced Advantage Fund which has an AUM of Rs 36,415 crore has seen its one-year return crumble to just 1.5%. Three-year returns have also moderated to 9.42%. The fund, formed by merging HDFC Prudence and HDFC Growth, has run into some very rough weather and many investors will be pondering the same question – should they leave?
How the fund was created
HDFC Balanced Advantage Fund was formed by merging HDFC Prudence and HDFC Growth. HDFC Growth Fund was a pure equity scheme which could invest 80-100% of its assets in equities and 0-20% to debt. It had an AUM of approximately Rs 1,100 crore, before the merger. HDFC Prudence was a hybrid equity fund. It was a behemoth with an AUM of about Rs 36,000 crore. It was allowed to allocate 40-75% to equities and 25-60% to debt.
HDFC Balanced Advantage, on the other hand, is a ‘Balanced Advantage/Dynamic Asset Allocation’ Fund which can go from 0-100% in either equity or debt. A 0-10% of assets can be invested in REITs/InVITs and non-convertible preference shares. It currently has 74% of its assets in equity and 26% in debt/cash. In other words, it is heavily tilted towards equity and its equity portfolio is performing badly.
Why it’s doing badly
It is difficult to understand why, but there are some possibilities. The portfolio is fairly concentrated with the top 10 stocks accounting for 50% of the portfolio. The top five stocks are Infosys, SBI, ICICI Bank, L&T and NTPC which haven’t been the top performers in their sectors. The 25% debt component has been hit by rising interest rates. Rising rates cause bond prices to fall and hence debt funds to do poorly.
Keeping the faith
For those who are not yet ready to give up, the long-term performance gives a measure of comfort. The five-year return is 19.5% CAGR and the 10-year return is 15.70%. Prashant Jain continues to manage the fund.
Whether an optimist or pessimist, investors should understand that no fund manager can outperform the market, all the time. This means that extraordinary returns achieved five or 10 years ago will not necessarily be repeated in the next 5-10 years.