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Citrus Analysis: Rel Reg Savings–Balanced Fund : A well-balanced offering
Fri, Feb 08, 2013
Source : Jeni Shukla, Citrus Interactive

Reliance Regular Savings–Balanced Fund is an equity-oriented balanced fund. It was launched in June 2005. Currently it has assets under management worth Rs. 556.47 crore. It is benchmarked against the Crisil Balanced Fund Index. The peer set for the purpose of this study comprises all open-ended equity-oriented balanced funds.

Performance

 

1-Year

3-Years

5-Years

Since Inception

Reliance Regular Savings – Balanced

23.93

11.11

11.24

13.13

Crisil Balanced Fund Index

17.04

7.66

5.47

12.32

Category Average

13.95

8.25

5.40

NA

All figures in % as on January 31, 2013; Returns above one-year in CAGR

The fund has outperformed its benchmark as well as category average over the last one-, three- and five-year periods. Its return since inception is also higher than that of its benchmark.

 

2007

2008

2009

2010

2011

2012

Reliance Regular Savings – Balanced

49.61

-36.22

71.85

22.11

-19.27

33.86

Crisil Balanced Fund Index

36.76

-34.50

46.26

13.55

-14.39

21.27

Category Average

44.25

-41.73

57.12

15.71

-16.19

26.85

All figures in %

In terms of calendar-year returns, the fund underperformed its benchmark in both 2008 and 2011. It underperformed vis-à-vis the category average in 2011 alone. It outperformed both the benchmark and the category average in 2007, 2009, 2010 and 2012.

Says Sanjay Parekh, the Senior Fund Manager: “2011 was marked by non-secular market movements, with a very few selective stocks (especially some large cap stocks) and a few sectors doing extremely well, while the broader market remained flat to negative. A broad based strategy adopted by the fund temporarily lagged behind the category average due to exceptional market conditions.”

When asked about the outperformance in 2012, he says, “The fund has adopted a disciplined approach to investing into stocks. Companies have been carefully assessed on the merits of its business, the quality of its management and their valuation. Significant levels of margins had been considered before buying the stocks and in case of mid/small sized companies, the equivalent return expectation had been kept much higher. Such processed approach along with appropriate switch decisions within large cap stocks based on relative attractiveness and lack of aversion to move out of over-priced stocks have helped the fund. The fund has also avoided stocks / sectors which had got negatively impacted due to Government policies. As part of its philosophy, by having taken significant deviation from the sector weights in the index and active management, the fund has managed to outperform the category average.”

Investment Strategy. According to the fund manager, “Reliance Regular Savings Fund – Balanced Option (RRSF – B) is an open-ended scheme that invests into a combination of equity, equity related instruments & fixed income instruments in order to generate consistent returns and appreciation of capital. The scheme would endeavor to provide growth through equity investments and stability through the fixed income investments and would be ideal for those investors who seek to achieve the objectives of growth at reasonable stability. The overall philosophy of the fund is based on a strong risk management framework to seek Growth at Reasonable Price.  The fund follows a bottom-up stock picking style and could take significant sector deviation in order to attempt to create sustained alpha over a period of time. The scheme generally invests around 70-75% into equities & equity related instruments”

Portfolio Characteristics - Equity

Number of equity holdings. Currently the fund has 37 stocks in its portfolio. This is lower than the category median of 50 stocks. The fund has maintained an average stock count of 13 in 2008, 20 in 2009, 29 in 2010, 32 in 2011 and 30 in 2012. In all these years its equity holdings have been fewer than the category median, indicating a concentrated portfolio.

Sector Concentration. As per the fund's latest disclosures, it has a higher level of concentration in the top three, five and 10 sectors compared to the category median.

 

Top 3

Top 5

Top 10

Reliance Regular Savings – Balanced

30.84

40.57

56.22

Category Median

25.60

35.13

50.52

All figures in %, as on December 31, 2012

Company Concentration. The fund has a higher level of concentration in the top three, five and 10 companies compared to the category median.

 

Top 3

Top 5

Top 10

Reliance Regular Savings – Balanced

16.51

23.80

37.30

Category Median

12.78

19.47

32.45

All figures in %, as on December 31, 2012

Thus, in terms of number of stocks held, the fund has got progressively more diversified in recent years, though not as much as its peers. As far as sector and company concentration go, the portfolio tends to be concentrated at the top.

Says Sanjay: “The fund’s portfolio is fairly well diversified with more than 30 stocks from various sectors. Having mentioned about the same, concentration (even if it is not the case for the fund) may not be the only (or the most important) source of risk / return. Other fundamental and technical aspects of the stocks would determine the overall risk / return paradigm and these factors are continuously examined and acted upon to create value in the fund. For instance, a concentrated portfolio invested into stocks which offer deep value may not be as risky as a diversified portfolio of stocks consisting of investments into over-valued companies.”

Turnover Ratio. The fund’s turnover ratio is 100 per cent compared to the category median of 81 per cent. The fund’s average for 2012 stood at 119 per cent against the category median of 98 per cent. Thus, the fund’s turnover ratio tends to be on the higher side. Says the fund manager: “The strategy of the fund is to attempt to create alpha by actively managing the portfolio, which involves continuously assessing and if need be, acting on the stocks. Booking profits once price exceeds value and making appropriate switch decisions within a category of stocks based on their fundamental strength and relative valuation are a few tactics the fund adopts on a regular basis that may result in the fund’s average turnover ratio to be relatively higher.”

Portfolio Characteristics – Debt

Modified Duration. Currently the fund’s modified duration is 0.3 years which is lower than the category median of 0.7 years. Modified duration has averaged 0.4 years in the last one year. This implies that the fund holds short-duration debt papers, thus reducing the both the risks and the gains arising from interest-rate movements. The fund manager says, “The debt portion of the fund is largely invested into instruments having short to medium maturity profile. The debt portion would lend stability to the scheme. Accordingly, the maturity / duration of the debt portion of the fund is generally kept low.”

Credit Rating. The fund's debt portfolio is invested mainly in extremely safe AAA-rated papers. According to Sanjay, “There is no specific mandate or restriction for credit rating of the debt instruments. However, the fund, by and large, would invest into high quality debt instruments mostly having high credit rating.” The current portfolio is as follows:

Instrument Type

Allocation (%)

AAA

17.23

AA+

4.62

AA-

0.89

Cash & Equivalent

3.01

Equity

70.17

Rights

4.08

 

Expense Ratio. The fund’s expense ratio is 2.89 per cent which is higher than the category median of 2.52 per cent.

Risk. In terms of measures like standard deviation and beta (measured over last three years) the fund’s level of risk is higher than the category median.

 

Standard Deviation

Beta

Reliance Regular Savings – Balanced

0.7639

-0.2347

Category Median

0.7108

-0.4070

 

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

 

Sharpe

Treynor

Reliance Regular Savings – Balanced

0.0533

1.6316

Category Median

0.0342

-0.1355

 

Cash allocation. Currently the fund’s allocation to cash is 7.09 per cent against the category average of 7.29 per cent. The fund avoids taking significant cash calls.

Portfolio Strategy

According to the fund manager, “The fund generally tends to invest about 45-50% of its overall equity exposure in large-cap stocks and the remaining into emerging mid-cap and small-cap stocks.”

2012. The fund’s return of 33.86 per cent was substantially better than the benchmark’s return of 21.27 per cent. The BSE Sensex was up 25.70 per cent that year.

The fund’s average equity allocation for the year stood at 73.02 per cent. Its allocation to cash and cash equivalents averaged 2.36 per cent. The fund had invested 17.19 per cent of its total assets in AAA-rated debt papers.

Sector

Jan-12 (%)

Dec-12 (%)

Raised/lowered allocation (%age points)

Bank - Private

4.59

10.28

5.69

IT - Software

6.99

11.06

4.07

TV Broadcasting & Software Production

1.94

5.56

3.62

Diesel Engines

1.96

4.17

2.21

Power Generation/Distribution

1.93

3.40

1.47

Oil Exploration

3.16

3.32

0.16

Electric Equipment

5.02

3.34

-1.68

Pharmaceuticals & Drugs

11.29

9.50

-1.79

Bank - Public

5.40

2.94

-2.46

Telecommunication - Service  Provider

5.19

2.65

-2.54

 

In 2012 the fund increased its allocation to sectors like private banks, IT-software, TV broadcasting, diesel engines and power generation/distribution. It lowered its allocation to telecom-service providers, public banks, pharmaceuticals and electric equipment.

 

Company

Jan-12  (%)

Dec-12     (%)

Raised/lowered allocation (%age points)

ICICI Bank Ltd.

 

4.81

4.81

Infosys Ltd.

4.27

6.23

1.96

HDFC Bank Ltd.

4.59

5.47

0.88

Cummins India Ltd.

1.96

2.79

0.83

AlstomT&D India Ltd.

2.68

3.34

0.66

Abbott India Ltd.

2.74

3.24

0.50

DiviS Laboratories Ltd.

3.66

3.95

0.29

Bharti Airtel Ltd.

2.84

2.65

-0.19

Sun Pharmaceutical Inds. Ltd.

2.60

2.31

-0.29

Cairn India Ltd.

3.16

2.51

-0.65

 

Among its top 10 holdings the fund increased its allocation to companies like ICICI Bank, Infosys, HDFC Bank and so on (see table above). It lowered its exposure to Cairn India, Sun Pharmaceuticals and Bharti Airtel.

Fund Managers. Sanjay Parekh (Senior Fund Manager at Reliance Mutual Fund) has managed he equity portion since April 2012 while Amit Tripathi (Head-Fixed Income at Reliance Mutual Fund) has managed the debt portion since August 2010. Parekh also manages Reliance MIP and Reliance Banking Fund, both of which are doing well. Other schemes managed by Amit Tripathi include Reliance Money Manager, Reliance Liquidity, Reliance Liquid, Reliance FRF-ST and Reliance Yearly Interval Fund.

Conclusion. Reliance Regular Savings-Balanced carries a low-maturity debt portfolio and a concentrated equity portfolio which is churned more than its peers. The fund has a history of consistently beating its category average except in 2011. Very few funds in this category have such an excellent track record.
 
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