Fund Call. SBI Equity Hybrid: A consistent performer

Hybrid mutual fund schemes invest in a mix of equity and debt. Within this category, funds that invest their corpus aggressively in equity — 65-80 per cent in equity and the rest 20-35 per cent in debt — are categorised as aggressive hybrid funds

Among the top performers in the category is SBI Equity Hybrid Fund, a scheme that you can consider investing in. It is rated five-star in BusinessLine Portfolio Star Track MF Ratings .

SBI Equity Hybrid (earlier called SBI Magnum Balanced), the largest in the category, has outperformed many of its peers. A significant presence of large-caps (along with mid-caps, to an extent) in its equity portfolio, coupled with a large proportion of high-rated papers in its debt portfolio, make it a good bet in this space.

Portfolio

The scheme has been investing 68-73 per cent of its corpus in equity, and the rest in debt, over the past year. The fund has had an average equity exposure of 69 per cent — with 57 per cent in large-caps, 10 per cent in mid-caps and 3 per cent in small-caps, over the 12-month period ended December 2020.

The remaining 30 per cent was in debt (including cash).

It holds a well-diversified portfolio; as of December 2020, the top 10 stock holdings accounted for around 32 per cent of the assets under management (AUM). The equity exposure is also spread across several sectors.

Financial services, IT, pharmaceuticals, oil and gas, and services are the top five sectors, accounting for close to 56 per cent of the AUM.

Debt accounts for 30 per cent of the fund AUM (one-year average). Here, SBI Equity Hybrid has been holding a large part of its portfolio in AAA rated and sovereign debt papers and cash. Over the last one year until December 2020, on average, 19 per cent of the fund’s corpus was invested in such assets, and less than 3 per cent was in A, A+ and A- debt papers.

While this offers comfort on the credit-quality front, there are other schemes such as Canara Robeco Equity Hybrid and Mirae Asset Hybrid Equity that have an even higher proportion of AAA rated and sovereign debt papers in their portfolios.

Performing well

SBI Equity Hybrid Fund has outperformed its peers over three- and five-year periods on a rolling-return basis over the last seven years.

The scheme has generated an average three-year rolling return of 11.6 per cent, and five-year rolling return of 11.2 per cent during this period. This is higher than the category average three-year return of 9.6 per cent and five-year return of 8.9 per cent.

While these returns are slightly lower than those of another top-performer, Canara Robeco Equity Hybrid, they are far better than the returns fetched by several other peers. For our analysis, we have taken MF schemes with at least a seven-year history and an AUM over ₹3,000 crore.

Returns apart, the fund has also provided good downside protection.

It has had no instances of negative three-year returns over the last seven years on a rolling return basis. This has not be so for many other peer funds. For the hybrid fund category, three-year returns have been negative, 4 per cent of the time during the last seven years.

Also, the fund has fetched three-year returns of at least 8 per cent, 82 per cent of the time, compared with 69 per cent for the category.

Similarly, the scheme has generated five-year returns of at least 8 per cent, 87 per cent of the time versus 62 per cent for the category.

Investor suitability

Hybrid mutual funds can help investors follow a suitable asset allocation (between equity and debt) automatically, without having to take on the task of rebalancing on their own. . Given that equity markets are volatile, investors may be tempted to counterintuitively move in and out of equity.

Hybrid funds, by managing their equity allocation based on factors such as valuations, help take away the impulsiveness and make the decision more process-based. These schemes are suitable for investors with some risk appetite and an investment horizon of at least five years.