L&T Hybrid Equity: Consistent performer across market cycles

Be it a rally or a downturn, the fund’s deft juggling between debt and equity has paid off

The recent mayhem in the market, led by the sharp fall in stocks of housing finance companies and other non-banking finance companies, has increased the volatility in the equity market. If you have a moderate risk appetite and a long-term horizon, short-term jitters in the market should not deter you from parking money in equities.

Aggressive Hybrid Funds under SEBI’s new classification, that are mandated to invest at least 65 per cent in equity and 20 per cent in debt, are good options in this market. While the funds’ equity exposure can help generate inflation-beating returns, the debt portion helps tide over market volatility better. L&T Hybrid Equity (formerly L&T India Prudence Fund) has been a consistent performer across cycles. It has been investing 65-70 per cent of its assets in equity in the past and, hence, there has been no change in its portfolio after SEBI’s new categorisation norms.

Over a five-year period, the fund has delivered around 18 per cent annual return, beating the category by 2 percentage points. Investors with a three- to five-year horizon can invest in the fund through SIPs to tide over market volatility better.

Remember though, that qualifying as an equity-oriented fund, long-term capital gains (above ₹1 lakh) will be taxed at 10 per cent (without indexation) if held for more than a year.

Cashing in on opportunities

L&T Hybrid Equity has been able to deliver across market cycles — be it rallies or downturn. In the bull run of 2014, for instance, the fund delivered 44 per cent return, cashing in on opportunities in equities. Increasing exposure to banks, particularly public sector banks (PSBs) that zoomed that year, helped the fund rake in tidy returns. Its deft shift to government securities towards the end of the year also helped cash in on the rally in the bond market. In the so-so market of 2015, while equities delivered lacklustre returns, the fund’s notable exposure to government securities helped cap losses; the fund managed to deliver a noteworthy 10 per cent return against the category average of 3 per cent.

In 2017, as the equity market made a strong comeback, the fund delivered a tidy 28 per cent return. Cutting back on government securities in view of rising rates and increasing exposure to corporate bonds also paid off.

Current portfolio

While the fund has taken notable exposure to mid- and small-cap stocks in the past, over the past year, it has been conservative and maintained over 60 per cent of equity in large-cap stocks (those with market capitalisation of more than ₹29,000 crore as per AMFI’s classification). On the debt side too, the fund has been conservative, investing in government bonds and highly-rated corporate bonds.

Currently, the fund has 73 per cent exposure to equity, of which 66 per cent is in large-cap stocks. It holds 5 per cent in G-Secs and about 14 per cent in corporate debentures. Banking, software and finance are highly preferred sectors. Barring Indian Bank, the fund holds only private bank stocks in its portfolio which, given the uncertainty in PSBs, may augur well. Since the beginning of the year, the fund has increased its holdings in private banks and software stocks.

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