SBI Equity Hybrid Fund: A ballast for your portfolio in yo-yo markets

The fund has a good track record across bull, bear and volatile markets

Investors wanting to play it safe in the current volatile markets can choose SBI Equity Hybrid Fund.

Formerly called SBI Magnum Balanced, the fund’s name was changed to reflect SEBI’s new categorisation rules for schemes. The fund’s investment philosophy, though, has not changed substantially.

It will invest at least 65 per cent in equities, and the remaining in fixed-income securities. The fund has a good track record across bull, bear and volatile markets.

Deft strategy aids returns

The fund manages its asset allocation quite well to cash in on conducive conditions across equity and debt markets.

Lower exposure to equities helped it contain losses well in the fall of 2011 and the volatile markets of 2015.

To ride on the rally in bond prices in 2014, the fund held up to 23 per cent in long-term government securities that year, compared with less than 10 per cent the previous year.

Considering that the markets have been see-sawing this year after a strong rally in 2017, the fund has cut down its equity exposures in the past few months. It now holds only the minimum 65 per cent in the segment.

On the debt side, bond prices have been trending downwards in the last one year, with 10-year government security yields inching up to 7.7 per cent now from 6.6 per cent a year ago.

Hence, the fund has rightly cut its long-term government-bond holdings, and has latched on to short-term money market instruments such as certificate of deposits and collateralised borrowing and lending obligation (CBLO) in this period.

It acts with equal panache in its choice of stocks on the equity side. Thus, an allocation of about 30-35 per cent to mid-caps saw the fund do well in the bull market of 2014. But given the high valuations in this space, the fund has consistently brought down its holdings in mid-caps since early 2017.

These factors have helped it consistently clock category-beating returns. Over one-, three- and five-year periods, the fund has outperformed its category average returns by 1-5 percentage points.

It has been able to contain losses better than the bellwether/broader market indices in falling and iffy markets such as 2011, 2013 and 2015. This attribute will come in handy this year, if the volatility continues for some more time.

Current portfolio

As per its April 2018 portfolio, the fund holds 65 per cent in equities, 13 per cent in money market instruments, 8 per cent in corporate debentures and 11 per cent in government securities. On the equity side, it churns its sectors well according to the flavour of the season.

Usually, it latches on to cyclicals such as industrials or auto during market upswings, while increasing stakes in defensives such as consumer non-durables in troubled times. Banks are the top sectoral choice now, followed by software.

While the fund did reduce stake in software stocks a year ago, the sector has found favour again in the past few months, thanks to factors such as the rally in stocks of mid-tier IT companies and a weak rupee.

It currently holds stocks such as HCL, Infosys, TCS and eClerx. On the debt side, the fund holds AAA-rated instruments of HDFC, REC, PFC and Nabard. It does not hesitate to tap lower-rated instruments (AA, A) for better returns.

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