In the previous column, we had concluded that a comparison of Balanced Advantage Funds (BAFs) that do not use the same base parameters would lead to somewhat erroneous conclusions. However, since there is no restriction on any AMC to use a stated parameter of their choice, let us zoom in on those that held fort and minimised losses.
Four such BAFs that we shall turn the spotlight on are L&T BAF, Principal BAF, Tata BAF and Edelweiss BAF, which restricted declines to between negative 10 and 14 per cent over a three-month period while equities tumbled by 30-35 per cent following the ‘tsunami’ that swept the Indian equity market in March.
L&T BAF has an AUM of Rs 590 crore and uses the price-to-equity and price-to-book ratios as its guiding parameters for its equity allocation. Its debt-to-equity holding ratio was 25:75 at the end of March 2020. The fund’s debt allocation includes fixed deposits and debentures, whereas its equity allocation is primarily spread across sectors like construction, financials and technology.
Principal BAF has an AUM of around Rs 137 crore and the fund invests in equity based on an asset allocation model that is driven by the month-end trailing price-to-earnings ratio of the Nifty 50. Its asset allocation at the end of March 2020 stood at 30:70 in terms of debt-to-equity allocation. Most of this BAFs debt allocation is in cash and cash equivalents and the debt instruments it holds are CRISIL AAA rated. The sectors in which these BAFs equity investments are primarily spread include financials and consumer durables.
Tata BAF has an AUM of over Rs 925 crore. It follows a price-to-earnings and price-to-book B model to gauge intrinsic value of stocks and had a 30:70 debt-to-equity asset allocation ratio at the end of March 2020. The primary holdings of this BAF include financials, energy, construction and technology stocks as part of its equity allocation alongside FDs, NCDs and Certificate of Deposits as part of its debt allocation.
Edelweiss BAF has an AUM of Rs 1,428 crore and makes its equity allocations based on the market trend and its strength in addition to valuations and macroeconomic factors. This BAF had a 40:60 debt-to-equity asset allocation ratio at the end of March 2020. It has a diversified equity portfolio with financials carrying the maximum weightage. The debt allocation of this BAF includes Commercial Paper, Debentures and FDs.
Well, one swallow doesn’t make a summer, but at the same time, there is no mistaking the fact that notwithstanding the arguments around the Sortino ratio benchmark being a fairer indicator, these smaller BAFs proved to be more nimble-footed compared to their bulkier peers, when the market tide went out.
It would now be interesting to see how these funds fare in comparison to their bigger and better established peers over the longer term.
Ashok Kumar heads LKW-INDIA. He can be reached at ceolotus@hotmail.com