Last Updated on December 29, 2021 at 12:08 pm
This is a performance review of HDFC Balanced Advantage Fund, previously HDFC Prudence Fund. Does it still make sense to consider this fund or continue investing in it? Let us find out by comparing it with Nifty 50 and HDFC Hybrid Equity (Balanced) fund.
This fund has had a colorful history 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. This is the NAV of the fund since inception and a comparison from May 2001 with Nifty 50 Total Returns Index.
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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).
Not only was this move baffling, as mentioned earlier in, what now for HDFC Prudence and HDFC Balanced Investors, the new investment strategy of HDFC Balanced Advantage is as vague as it can get!
- Old Asset Allocation: 40-75% (although it remained an equity fund after the 65% min requirement ruling by SEBI)
- New asset allocation: 0 -100% (it will still remain an equity fund as it has a huge AUM)
- Old benchmark: Crisil Balanced Fund Aggressive Index Nifty 50 index – 65% + CRISIL Composite Bond Fund Index – 35%
- New benchmark: NIFTY 50 Hybrid Composite Debt 65:35 Index. This possibly means that it will remain equity oriented at least most of the time.
HDFC offers a vague definition of “balanced advantage”. In the fact, the whole scheme document of this fund is vague.
The fund manager will determine asset allocation between equity and debt depending on prevailing market and economic conditions. The debt-equity mix at any point of time will be a function of interest rates, equity valuations, medium to long term outlook of the asset classes and risk management etc.
HDFC Balanced Advantage Fund vs Nifty 50 TRI
HDFC mutual fund offers adjusted NAV for both Balanced advantage and Hybrid Equity in its website. This is a contiguous NAV history across the fund mergers mentioned above. I have used the same for this analysis.
Disclosure: As mentioned in my 2018 personal finance audit, I am an investor in both HDFC balanced advantage and Hybrid Equity.
Three years rolling returns
Let us kick things off with the 3Y rolling returns history.
What you see above is 3963 3Y return data points in each line from May 2001. That is pretty awesome for a fund that have never had a full equity portfolio. Its recent performance is still quite good.
Next, using the Equity Mutual Fund Rolling Upside/Downside Capture Calculator (this is the tool that set the foundation for the monthly screeners), we can view the downside capture and upside capture with time.
The downside capture tells you how much NIfty 50 losses has the fund captured. If downside capture = 100% it is as “lossy” as NIfty 50. If it is 110%, then it has captured 10% more loss! If is 90%, it has captured 10% less loss. So lower the downside capture the better.
So if we reverse the argument of the above para, higher the upside capture, the better as this means the fund has gained more when the index gained.
Three years rolling downside and upside capture
In the early 2000s, the fund gained a reputation as being more aggressive than most balanced funds with a high upside and downside capture. However, recently it has mellowed considerably with low downside and low upside capture. The capture ratio is upside by downside and >1 is considered as “good”.
Five years rolling returns
Again that is awesome (3233, 5Y data points)!
HDFC Balanced Advantage Fund vs HDFC Hybrid Equity
I have reviewed HDFC Hybrid Equity Fund (HDFC Balanced) earlier, and it is a pretty good fund to hold. Amusingly, HDFC MF has clarified that its balanced advantage fund is more volatile than its aggressive hybrid fund!!
Investors should understand this before comparing or investing.
Five years rolling returns
So now we compare: HDFC Balanced Advantage vs HDFC hybrid vs NIfty 50 vs Nifty 100 vs Nifty 200
The no of data point as shown above is 3233 for the HDFC funds.
Five years rolling volatility
This is the rolling volatility or standard deviation for the above data set.
Observations from the above
- HDFC Balanced Advantage has outperformed Nifty 50 at significantly lower risk
- HDFC Hybrid has recently outperformed Balanced Advantage at lower risk!
Summary and conclusions
There can be no doubt that HDFC Balanced Advantage is still a compelling pick and existing investors should certainly continue to hold and invest more in it. So can new investors but they do have less volatile choices in HDFC Hybrid Equity and ICICI Prudential Equity & Debt Fund (ICICI Balanced)
My only grouse is the product position. HDFC Prudence should have been called the aggressive hybrid fund as it is one and HDFC Balanced the balanced advantage. Also, the lack of clarity in the asset allocation pattern is annoying. I would prefer a balanced advantage fund with a clear tactical asset allocation strategy and a much lower risk. ICICI Prudential Balanced Advantage Fund has scored in this count with performance & Low Volatility. Although it offers lower reward than both HDFC funds, it will work well for important goals or for post-retirement investing.
I was asked why I hold Balanced Advantage when it is more volatile than Hybrid Equity. Two reasons: (1) they are used for different goals and (2) the volatility different is not that high to make a big deal about
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