Equity market is at historical highs and some investors are sitting on the fence to deploy cash in the market. If you are among those but are waiting for some correction, you may consider investing in balanced advantage funds (BAFs). These funds dynamically adjust their equity and debt allocations based on market conditions, allowing them to capitalise on market trends while providing a cushion against the downside. They invest in a mix of stocks, bonds and assets, such as real estate investment trusts (Reits), aiming to deliver better risk-adjusted returns. This also makes them suitable for investors looking for stability without sacrificing growth. Aditya Birla Sun Life Balanced Advantage Fund is one such fund in this category.
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Portfolio
The fund manager follows a dynamic price-to-earnings (P-E) ratio-based approach to asset allocation. When markets rise and stocks become overvalued, they decrease their equity allocation, and vice-versa. In many instances, the fund reduced the net equity exposure in the range of 63-65 per cent in the last five years when the market valuations weren’t favourable. As of August 2024, its net equity exposure is 71.50 per cent. To remain tax efficient, the fund also uses hedging strategies to ensure that the equity investment remains above 65 per cent.
The beauty of the fund lies in its portfolio construction. Though it has a mandate to invest up to 100 per cent in equity, the fund manager has never gone overboard. In the last 10 years, it has consistently maintained the equity allocation in the range of 65-75 per cent, barring a few instances when the equity exposure reached 80 per cent.
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Performance
The fund has been one of the most consistent performers across market cycles, even though it has not given the highest returns. In the last 10 years, it has delivered 12.41 per cent compared to its category average of 12.13 per cent.
OLM Take
If you are looking for a consistent performer in the balanced advantage category, this could be a decent choice given its track record.
