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Tata Balanced Fund: Star Balanced Fund
Mon, Feb 08, 2016
Source : Jeni Shukla, Citrus Interactive

Tata Balanced Fund is an equity-oriented balanced fund. The primary objective of the Scheme is to provide income distribution and / or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.. The fund (formerly Tata Equity Growth Fund) was launched in October 1995 and is benchmarked against the Crisil Balanced Fund Index. The fund has an AUM of Rs 5,380 crores as on December 31, 2015 which has gone up by Rs 3,595.86 crores as compared to the last year December 31, 2014 (Rs. 1,784 crores). This is noteworthy as the fund has tripled in size in a year’s time – and is among the top 5 funds in terms of AUM growth in 2015. The peer set for the purpose of this study comprises all open-ended equity-oriented balanced funds.

Performance

Tata Balanced Fund has an excellent track record of consistently outperforming its benchmark index and the equity-oriented hybrid category average across all time frames except the last 6 month-period as shown from the table given below. It has been in the first quartile of its peer-set across all time frames as shown from the table given below (except 6 months when it is in the second quartile). Since inception is has outperformed its benchmark by 4.19%. It is the best performing balanced fund in the last 5 years.

Scheme Name

6 Months

1 Year

2 Years

5 Years

Since Inception

TATA Balanced Fund

-6.56

-2.94

25.72

15.26

16.46

Crisil Balanced Fund Index

-6.06

-6.92

11.67

7.62

12.27

Category Average

-6.59

-5.49

18.95

10.97

NA

Rank

14/27

6/27

2/25

1/23

NA

Figures are in % as on January 31, 2015; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark index and the equity-oriented hybrid category average in all the last five calendar years as shown in the table given below.

Scheme Name

2011

2012

2013

2014

2015

Tata Balanced Fund

-12.02

30.55

7.54

49.61

6.97

Crisil Balanced Fund Index

-14.39

21.27

6.05

25.34

0.48

Category Average

-15.78

27.82

6.56

40.06

2.86

Rank

7/23

7/24

8/24

5/25

4/26

All figures in %

Risk: In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken higher risk compared to the category median.

 

Standard Deviation

Beta

Tata Balanced Fund

0.72

1.78

Category Median

0.7

1.68

 

Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided higher risk-adjusted returns than the category median.

 

Treynor

Sharpe

Tata Balanced Fund

0.04

0.09

Category Median

0.03

0.08

 

Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is lower than the category median highlighting lower risk of the fund.

 

Top 3

Top 5

Top 10

Tata Balanced Fund

33.42

48.63

66.65

Category Median

38.59

51.49

71.02

Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

Tata Balanced Fund

16.03

21.91

32.98

Category Median

18.86

27.86

42.99

 

Number of equity holdings: The fund currently holds 73 stocks in its portfolio (December 31, 2015), which is higher than the median stock count for the equity oriented - hybrid category, which currently stands at 53. Thus, based on equity count the fund runs a high diversified portfolio compared to its peer set. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 54.

Cash allocation: The average cash allocation for last five years is 3 per cent. Its maximum allocation to cash over last two years was 5.56 per cent in December 2015 and lowest was 0.56 per cent in February 2015. In 2015 it had an average cash allocation of 2.98 per cent. Its cash allocation at the end of December 2015 was 5.56 per cent.

Portfolio Characteristics: The fund invests 65-75% of assets into equities and the rest in debt. As of December 2015 the fund’s exposure to equity stocks is 74.17% followed by debt with 20.26% and others with 5.56%.

Debt Allocation: The fund’s exposure to Government Securities is 15.59% and Corporate Debt is 4.67% which sums up to 20.26% in Debt.

Equity Allocation: The fund’s exposure to cyclical stocks currently is 45.96% followed by Services with 13.85% and Defensives with 14.35%. The Top five holding are HDFC Bank, Aditya Birla Nuvo Ltd., HCL Technologies Ltd., Axis Bank Ltd. and Sun Pharmaceutical Industries Ltd.

The top 5 sector include Banks-Private, Pharmaceuticals & Drugs, IT-Software, Engineering – construction and Cement & Construction.

Currently 54% of the portfolio is invested in large cap stocks, 20% in mid and 27% in small cap stocks.

In the last six months the fund has bought many new stocks - Aditya Birla Nuvo Ltd., Hindustan Unilever Ltd., Zee Entertainment Enterprises Ltd., Sadbhav Infrastructure Project Ltd., NCC Ltd., Pidilite Industries Ltd., Hexaware Technologies Ltd., Kansai Nerolac Paints Ltd., Alkem Laboratories Ltd. and PI Industries Ltd.

The holdings of Maruti Suzuki India Ltd., Siemens Ltd., Bosch Ltd., The Federal Bank Ltd., Cadila Healthcare Ltd., Ashok Leyland Ltd., Mindtree Ltd., CMC Ltd.(Amalgamated) and VST Tillers Tractors Ltd. have been dropped from the portfolio.

Based on criteria such as equity count, sector concentration and company concentration, one can conclude that the fund runs a well-diversified portfolio.

The fund has an exit load of 1% applicable for 1 year. The expense ratio is 2.81% which is higher than the category median of 2.35%. The minimum investment amount is Rs. 5,000.

 

Process

The scheme actively manages the combination of the equity and debt investments depending upon the existing market conditions and outlook. It aims to seek an optimum combination of capital appreciation and income opportunities. This schemes turns almost as aggressive as normal equity scheme in case of bullish market phase but less risky when market heads southward. A minimum of 65% will be invested in equity and the maximum exposure allowed is 75%. Investment in derivatives/futures/options may be done for trading, hedging and portfolio balancing. The scheme would limit its exposure, with regards to securities lending, for a single intermediary, to the extent of 5% of the total net assets of the scheme at the time of lending. On the debt side, the fund focuses on optimizing returns with lower volatility and emphasizes on building a portfolio of quality papers.

Criteria for stock selection:

             High cash generation

             High capital efficiency

             Good earnings growth prospect

The fund follows automatic rebalancing as well as buying on dips mechanism. It uses a combination of sector rotation and stock picking strategy on the equity side. The debt portion aims at generation of stable accrual income along with potential capital appreciation to the portfolio. It avoids large cash calls in the portfolio.

 

Fund Manager:

Equity Fund Manager

Atul Bhole is a commerce graduate and holds a Chartered Accountant’s degree and a degree in Masters in Management Studies from JBIMS, Mumbai. He has over 7 years of experience. Atul joined Tata Asset Management Limited in February 2007 as an Equity Research Analyst covering Technology, Telecom and Banking, Financial Services, Insurance (BFSI) sectors. He manages this fund since January 2012. Other schemes managed by Atul Bhole are Tata Equity P/E Fund and Tata Mid cap Growth Fund. He also manages the equity portion of Tata MIP Plus Fund and Tata Monthly Income Fund. 

Debt Fund Manager

Mr. Akhil Mittal started his career in 2004 at Rallis India Limited where he worked till 2006 in the treasury department looking after working capital management, foreign exchange management & banking. He moved to Edelweiss Securities Limited in 2006, where he worked in the Corporate Treasury & resources department looking after resource mobilization, working capital management, banking & investments. Akhil joined Canara Robeco Asset Management Co Ltd as a fund manager looking after fixed income funds from Sept 2008 till Nov 2010 & from March 2011 to June 2014. He managed various Fixed Income portfolios including money market funds, duration funds and hybrid funds. He also had a brief stint with Principal PNB Asset Management Co Ltd from Nov 2010 to Feb 2011 where he worked as a Senior Fund Manager looking after Fixed Income Investments. Akhil joined Tata Asset Management in June 2014 as senior fund manager looking after fixed income investments. He is a B.Com graduate and holds an MBA degree from University Business School.

 

View

In the last one year balanced funds as a category have seen growing popularity. This is because it gives equity exposure with some downside protection because of partial allocation to debt. It is also more tax efficient as it enjoys treatment as an equity fund (therefore exempt from long term capital gains tax). Tata Balanced Fund has shown an excellent performance record which investors have also taken note of and hence it saw record inflows in the last one year. The fund manages the equity portion aggressively and has significant mid and small cap exposure. Another unique feature is the monthly dividend option – which is great for investors wanting regular cash flows. It is a suitable option for investors wanting an equity oriented hybrid fund.

 
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