SBI Magnum Balanced: Good for the long run - Buy

This veteran, though it has slipped a little now and then, has delivered across cycles

Investors with a moderate risk appetite could consider investments in equity-oriented hybrid funds that park a portion of their assets in debt, to mitigate risk. The equity markets, after recording new highs, have been volatile over the past one month due to global geopolitical tensions.

SBI Magnum Balanced has a good long-term track record of over two decades. Over the last 10 and five years, the fund has delivered a compounded annual return of 11.7 per cent and 19 per cent, respectively, outperforming the Nifty and the Sensex.

The fund is benchmarked against Crisil Balanced Fund-Aggressive Index and has outperformed it by delivering returns of 12.5 per cent, 12.8 per cent and 19 per cent over the past one-, three- and and five-year periods correspondingly. It is a top quartile fund over three- and five-year periods, but over the last one year it has slipped to second quartile. However, the fund has beaten some of its peers, such as UTI Balanced Fund and HDFC Prudence Fund in the long run.

Performance and strategy

SBI Magnum Balanced currently holds 71.5 per cent in equities and the balance in debt. It has reduced cash calls over the last couple of years — its cash position is about 2 per cent of assets.

During 2011 and the first half of 2012, the fund used to take cash calls and hold cash in the range of 7-13 per cent. In equities, the fund’s holding is in the 65-75 per cent band. In 2013 and 2014, the fund had increased its equity exposure to as high as 75.5 per cent and in 2015 it trimmed the allocation to a low of 66 per cent. Over the last two years it has maintained around 70 per cent allocation to equities.

Within equity allocation, the fund has 36 per cent exposure in large-caps and 29 per cent in mid-cap stocks. In debt, the fund invests in corporate debt instruments and G-Secs. Within this, the fund churns its allocation. For instance, the exposure in G-Secs was 22 per cent in June 2016. However, it started to reduce it thereafter, while exposure to corporate debentures increased.

Following a strong show between 2012 and 2015, the fund’s performance was below the category average in 2016. The fund has not participated well in the 2016 equity rally. That said, there in an improvement in performance of late, which is visible in three- and six-month returns.

The muted performance in 2016 could be attributed to the higher allocation to the software sector which continues to be an underperformer. Subsequently, it trimmed the allocation and currently holds about 4 per cent.

The fund exited IT major Infosys last month. It has exited the mineral and trading sectors over the last one year. On the other hand, it has expanded its sector allocations in commercial services, metals, construction and gas sectors over the last six months. Banking is the top preferred sector and combined with finance its allocation is about 32 per cent. Pharma and services are the other preferred sectors in which the fund is overweight.

It is underweight in energy, automobile, software and construction. Private sector banking stocks such as HDFC Bank and Kotak Mahindra Bank have delivered good returns over the last two years.

The fund recently added Ajanta Pharma, HDFC, Hindustan Zinc, Tata Steel and Petronet LNG. These could deliver good returns in the long run.

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