The market volatility of 2022 seems to have spilled over to the new year as well, with key indices gyrating in a narrow band without any specific directional certainty. For retail investors, a blended portfolio with equity and debt ingredients could be a good way to ride out market uncertainty with limited downside.
In this regard, Baroda BNP Paribas Balanced Advantage may be a suitable investment avenue. The scheme would suit investors with a moderate risk appetite looking to insulate their portfolios from heavy falls in the market.
Baroda BNP Balanced has been around for a little over four years, but has been fairly consistent in its performance and has been among the top few funds in terms of returns delivered in its category. The fund has been able to beat its benchmark, the NIFTY 50 Hybrid Composite Debt 50:50 Index, over the past three years and since its inception in November 2018.
Here’s more on why the scheme could be a good addition to your portfolio.
Steady outperformer
As mentioned earlier, Baroda BNP Balanced has a track record of four-odd years. Over the three years till December 31, 2022, the fund (direct plan) delivered 16.3 per cent returns, over the benchmark’s 11.7 per cent compounded annually. Since inception, it has 15.1 per cent returns versus the NIFTY 50 Hybrid Composite Debt 50:50 Index’s 12.2 per cent. Thus, the fund has a healthy outperformance record of 3-4 percentage points over its benchmark. It has delivered better returns than the balanced advantage funds of Nippon India, Kotak and Aditya Birla Sun Life over three- and four-year periods.
It has been among the top few funds in the category over these timeframes.
On a one-year rolling basis from November 2018 to January 2023, the fund has delivered 16.8 per cent returns on an average. For perspective, this is the highest in the category and is higher than the 12.9 per cent achieved by index such as the CRISIL Hybrid 35+65 Aggressive. The minimum return generated is -11 per cent, which compares favourably with peers. When a three-year rolling return is taken over the same period, Baroda BNP Balanced has achieved 16.85 per cent compound annual growth rate (CAGR).
Smart portfolio moves
Like most balanced advantage funds, the scheme juggles around with equity, debt and derivatives. Baroda BNP Balanced follows four metrics as a part of its asset allocation model. These are price earnings (PE), price to book (PB), dividend yield and earnings yield gap.
The fund keeps altering its equity exposure quite dynamically. For example from having just 55 per cent in equity and 12 per cent in arbitrage, the scheme increased equities exposure to 86-87 per cent in March-April 2020 as markets corrected sharply. It started reducing equity exposure from September 2020 as markets started heating up and valuations became uncomfortable. In June-July 2022, it again upped stakes in equities (up to 74 per cent), but has trimmed exposure in recent months. Baroda BNP Balanced has thus been able to capture market upsides reasonably well, while protecting downsides doing falls.
In terms of portfolio exposure, banks and financials top the charts. But all the other sectors in the portfolio is in single digits, making it quite diffused and less risky. The fund trimmed exposure to software and pharma stocks at the right time in late 2021 and early 2022. The fund has a large-cap tilt, with Nifty and Sensex names figuring among the top holdings. In general, the fund picks one leading company from sectors other than banks and financials. So, Infosys, Reliance Industries, L&T, Bharat Electronics and Titan are the only holdings from the sectors they represent.
In the debt portfolio, Baroda BNP Balanced sticks to AAA rated securities for most part. But quality names with AA ratings and higher yields also figure in the portfolio. Duration and credit are dynamically managed by the fund. Currently, the fund has securities with average maturity of 3.61 years and yield to maturity of 7.78 per cent.
The fund can be a good addition for the core of your portfolio holdings, if you can remain invested for 5-7 years at least. The SIP route to investing in the fund is also a suitable option for those with a modest risk appetite.