HDFC Balanced Advantage Fund Review

Published: September 12, 2020 at 11:49 am

We evaluate the performance consistency of HDFC Balanced Advantage Fund by comparing it with Nifty 100 TRI and CRISIL 65% Equity 35% Bonds hybrid index.

We shall use the same metrics as used in Equity Mutual Fund Performance Screener September 2020. This review of HDFC Balanced Advantage Fund is an update of our earlier review conducted in Jan 2019. The fund was launched in Feb 1994 as Centurion Prudence Fund by Twentieth Century Asset Management. Zurich India Asset Management then acquired it in 1999 and HDFC Asset Management in 2003 after which Prashant Jan started managing it.

In April 2018, to comply with SEBI categorization rules, HDFC announced that HDFC Growth Fund will be called HDFC Balanced Advantage Fund and that HDFC prudence will be merged into this new fund (balanced advantage). The NAV we shall use in this study will be adjusted to accommodate this merger (this is available with the AMC).

HDFC Balanced Advantage Fund has a vague mandate to invest in a ” dynamic mix of equity and debt investments”. Changes in market cap allocation (equity portion) and asset allocation are shown below.

HDFC Balanced Advantage Fund Market Cap Allocation History
HDFC Balanced Advantage Fund Market Cap Allocation History
Asset allocation history for HDFC Balanced Advantage Fund
Asset allocation history for HDFC Balanced Advantage Fund

It is clear that the “aggression” in the fund has toned down with an increase in debt allocation.

HDFC Balanced Advantage Fund Performance Evaluation

Out of 670 five year windows compared with Nifty 100 TRI, the fund beat the index 467 times (70% performance consistency). If we consider monthly returns and how often the fund fell less than index when the index return was negative (aka downside capture), we get a downside protection consistency of 82%.

With respect to CRISIL 65:35 hybrid index, the return outperformance consistency over five years was only 60.4% (595 out of 985 periods) and the downside protection consistency is only 33%.  Data for other durations is listed below.

BenchmarkVs Nifty 100 TRIVs Crisil 65:35
rolling return outperformance Consistency Score (1 year)57%50%
downside protection consistency (1 year)60%48%
rolling return outperformance Consistency Score (2 years)58%60%
downside protection consistency (2 years)71%39%
rolling return outperformance Consistency Score (3 years)58%75%
downside protection consistency (3 years)84%40%
rolling return outperformance Consistency Score (4 years)60%66%
downside protection consistency (4 years)100%51%
rolling return outperformance Consistency Score (5 years)70%60%
downside protection consistency (5 years)82%33%

That is sadly unremarkable. The excess return (fund return minus index return) vs excess risk (fund standard deviation minus index standard deviation) is plotted below.  The ideal fund should have lower risk and higher return than the index and should be present in quadrant “2”. Funds in quadrants “1” (higher risk, higher reward) and “3” (lower risk and lower reward) are acceptable.

Excess risk vs excess return of HDFC Balanced Advantage Fund(G)-Direct Plan(Adjusted) compared with NIFTY 50 - TRI and CRISIL Hybrid 35+65
Excess risk vs the excess return of HDFC Balanced Advantage Fund(G)-Direct Plan(Adjusted) compared with NIFTY 50 – TRI and CRISIL Hybrid 35+65

With respect to Nifty 100, HDFC Balanced Advantage is a quadrant “3” fund (red dots) but it is a quadrant “4” fund (higher than index risk and lower than index return). The five dots represent durations 1 to 5 years.

In summary, the performance of HDFC Balanced Advantage Fund has fluctuated between “average” and “above average” since Jan 2013. The fund has displayed reasonable if not spectacular consistency in its previous and current avatars. It certainly has the potential to do well but can test our patience.

Those who expect lower risk from it relative to aggressive hybrid funds or those who expect it to behave as a “balanced advantage” (wonder what means?!) should consider exiting. Only die-hard Prashant Jain fans or those who have seen better times with this fund may have the patience to continue with this fund. We badly need index hybrid funds but do not see that happening anytime soon due to AMC greed.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
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