PARVATHA VARDHINI C | August 28, 2016 | The Hindu Business Line
The fund’s debt exposure offers downside protection to conservative investors
Equity-oriented balanced funds are a good choice to beat the current volatility in the markets. These funds invest up to 35 per cent of their corpus in debt instruments and thus provide good downside protection for risk-averse investors. Franklin India Balanced is a fund that fits the bill in this category.
Performance and strategy
In falling and yo-yoing markets, Franklin Balanced remains resilient. In 2011, when the bellwethers and broader markets lost 25-27 per cent, the fund lost only 13 per cent.
In the see-sawing markets of 2015, the fund emerged on top, gaining about 5 per cent, while the indices fell 1-5 per cent.
Franklin Balanced managed to stay on top in the 2014 rally too, by deft asset allocation. The fund did not latch on too much to riskier mid- and small-cap stocks to ride the bull run and allocated less than 15 per cent of its equity portfolio to the same. It, instead, took advantage of the rally in bond prices, by increasing its holdings in government securities in this period. A sharp up-move in both equity and bond markets saw the fund clock 47 per cent return in 2014, as against the 30-37 per cent clocked by the bellwethers and the BSE/Nifty 500 indices.
Its returns are better than of peers’ such as Canara Robeco Balance and Reliance Regular Savings Balanced. The performance even matches that of diversified equity funds such as SBI Magnum Equity.
The fund normally keeps its mid-cap allocations to less than 10 per cent of its equity portfolio, barring occasional spikes up to 15 per cent during market upswings. Its top sectors are typically a combination of cyclicals and defensives. The fund has stepped up its holdings in bank stocks after a breather last year due to multiple headwinds hitting the sector. Barring SBI, its choices lean towards private banks such as HDFC, IndusInd, YES Bank, ICICI and Kotak Mahindra Bank currently.
In the auto sector too, the fund pushed up stake in Mahindra and Mahindra, betting on good monsoon. Other holdings here include Hero MotoCorp, Tata Motors and TVS Motors. Power Grid Corporation, Maruti Suzuki, Mahanagar Gas and Oil India are recent entrants. About 26 per cent is allocated to government securities. In the last couple of months, the fund has been trimming its exposure to corporate bonds. While its exposure to corporate bonds is not significant currently, in the past it has stuck with higher rated bonds — those rated AAA or AA.