SBI Equity Hybrid Fund Review: solid performance but should I invest?

Published: September 29, 2019 at 11:32 am

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This is an in-depth performance review of SBI Equity Hybrid Fund. We find out how consistently it has outperformed its benchmark and peers. Known as SBI Magnum Balanced prior to SEBI MF categorization, it is the seventh oldest balanced fund or aggressive hybrid fund and largest with assets of 29,354 Crores.

Let us check how the fund has grown, how it has allocated its assets in the past, type and credit quality of the bonds in its portfolio and compare performance with its benchmark and peers recommended in my Handpicked Mutual Funds July 2019 (PlumbLine) – this is due for an update in Oct (last quarter).

SBI Equity Hybrid Fund: Basic Details

TypeOpen-ended scheme
AssetHybrid
CategoryAggressive Hybrid Fund
Inception Date 31-Dec-1995
Fund ManagerR. Srinivasan, Dinesh Ahuja
ObjectiveTo provide investors with long-term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in fixed-income securities.
Minimum Investment1000
Incremental Investment1000
AUM (31-Aug-2019)29353.7003 (Cr.)
Expense Ratio1.65% Reg and 1.09% Direct
BenchmarkCRISIL Hybrid 35+65 – Aggressive Index (Benchmark)
Additional BenchmarkS&P BSE SENSEX – TRI (Benchmark)
Investment PatternMinimumMaximum
Debt instruments (including securitized debt) & MMI2035
Equity and equity-related instruments (including derivatives)6580
Units issued by REIT/InVIT010

Scheme Information Document

AUM Movement

SBI Equity Hybrid Fund saw its maximum AUM movement bet end-2013 and end-2018. From about 400 Crores in Oct 2013 to 21,000 Crores in Jan 2018 – more than a five-fold increase. The AUM increase in the last few months has been in line with NAV movement pointing to a significant drop in inflow.

AUM movement of SBI Equity Hybrid Fund

Historical Asset Allocation

Shown below the historical asset allocation of SBI Equity Hybrid Fund from Sep 2009 to Aug 2019. The fund has always held about 20-25% bonds. There are some marginal variations in equity allocation, perhaps tactical. It is a reasonably style-pure fund with regard to asset allocation. This is important to justify the study of past returns and risk.

SBI Equity Hybrid Fund Historical Asset AllocationNext, we have the type of bonds the fund has held. Corporate debt is a prominent holding. Also, one can the fund manager playing the duration game (or yield game) by varying SOV bond allocation tactically.

SBI Equity Hybrid Fund Type of bonds held in the portfolioThe credit quality of these is shown next. The fund has dabbled in 5-10% of lower than AAA bonds at different times in the past.

SBI Equity Hybrid Fund Quality of the bonds held in the portfolio

The fund has seen some bond downgrades but the exposure was too small to have made a difference.SBI Equity Hybrid Fund Rating downgrades

 

Expense Ratio History

Shown below are the expense ratios of the direct plan and regular plan along with the AUM change month on month. The direct plan has got more expensive since early 2016 and that is not quite desirable. The link between AUM movement and ER needs further exploration.

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Expense Ratio history of SBI Equity Hybrid Fund

SBI Equity Hybrid Fund: Performance

Comparison with benchmarks

Over a ten year period, the fund return has managed to stay comfortably above Nifty 50 TRI return.

SBI Equity hybrid Fund Rolling Returns ten yearsThe performance over five years is also pretty reasonable. Notice that the standard CRISL benchmark also performs similar to Nifty over five years.

SBI Equity hybrid Fund Rolling Returns five years

Comparison with peers

The HDFC Hybrid Equity (aka HDFC Balanced) is clearly the pick of the lot with the other funds in a similar league. The ICIC Fund is clearly second with not much difference between SBI and Franklin

SBI Equity hybrid Fund Rolling Returns ten years comparison with peersThe pattern is similar over five years too.

SBI Equity hybrid Fund Rolling Returns five years comparison with peersAmusingly when we look at the risk over five years, all the aggressive hybrid funds have done significantly better than Nifty but their risk is comparable to that of the CRISIL index which has 65% Nifty and 35% bonds.

SBI Equity hybrid Fund Rolling Risk or standard deviation for five years comparison with peersSo with respect to Nifty, these funds are lower-risk + potential higher return funds but with respect to the CRISIL Aggressive Index, they are higher/similar risk + potential higher return funds! A truly low-cost balanced index fund might give these a run for their money. However since AMC likes money more than anything else, it is not happening anytime soon. Even if it does, no one is going to push it!

Summary

SBI Equity Hybrid Fund has performed quite well against Nifty. It may not be the best in the category but it does have a decent track record. Existing investors can continue. New investors who are mature enough to not insist on “top performers” too can consider the fund.

There are three issues though. (1) Already the AUM is fairly high and the next time the market moves up consistently for a few months the AUM could move up again significantly (that fact that the AMC has a bank to push funds does not help). From this viewpoint, a quiet consistent performer with lesser AUM may be better.

The third issue is the expense ratio. Although it is lower than aggressive hybrid funds from ICICI, HDFC and Franklin, at just 0.2% for the direct plan, Mirae Asset Hybrid Equity Fund (click to read review) does look quite enticing!

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, 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. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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3 Comments

    1. Dear Pattu, Please do an in-depth review Principal Hybrid Equity especially on the debt/bond component of this fund. It was the only fund in the Aug 2019 Equity Mutual Fund Performance Screener which consistently beat Nifty 100 TRI >=70% over 1,2,3,4 & 5 year periods along with 70% downside protection and was also able to capture 70% upside movement during these periods

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