Last Updated on November 19, 2020 at 12:51 pm
We compare the SIP performance of Aggressive Hybrid Funds versus CRISIL Hybrid 35+65 – Aggressive Index and NIfty 50 TRI. The CRISIL Hybrid 35+65 – Aggressive Index has 65% of the 200 TRI index and 35% of the CRISIL Composite Bond Fund Index.
In the last year, that for a SIP started 12 months ago in the Nifty 50, the XIRR would be 42.3% (this will rapidly decrease with time for any fund, so should not be taken too seriously). Out of 33 aggressive hybrid funds studied, there managed to do better (not a recommendation!)
- JM Equity Hybrid Fund(G)-Direct Plan
- Quant Absolute Fund(G)-Direct Plan
- BOI AXA Mid & Small Cap Equity & Debt Fund(G)-Direct Plan
The CRISIL Hybrid 35+65 – Aggressive Index managed an XIRR of 31.84%. Only 17 out of 33 funds outperformed. If we consider the last two years, the number of outperformers drop to 10 (out of 32).
Over the last three years, it is only 6 out of 25 outperformed the hybrid index. Over the last four years, it is only 6 out of 24. Over the last five years only three out of 21. Over the last six years 2 out of 20.
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Then over the last 7 years, the number of out outperformers increase to 4 out of 20 and 6 out of 19 over the last 7.8 years (94 months since Jan 2013 the inception of direct plans). Asset allocation is referred to as “free lunch” in portfolio management. That is you get the benefits of diversification and lower volatility without doing much.
This can be observed from the table below. Return difference = Nifty 50 return minus Crisil hybrid index return. The % outperformers here refer to the percentage of aggressive hybrid funds that have outperformed the CRISIL index.
| XIRR Tenure (SIP) | NIFTY 50 – TRI | CRISIL Hybrid 35+65 – Aggressive Index | Return difference % | % outperformers |
| 1Y | 42.25 | 31.85 | 10.41 | 52% |
| 2Y | 18.24 | 17.25 | 0.98 | 31% |
| 3Y | 13.09 | 12.97 | 0.13 | 24% |
| 4Y | 12.42 | 11.82 | 0.59 | 25% |
| 5Y | 12.46 | 11.81 | 0.65 | 14% |
| 6Y | 11.43 | 11.18 | 0.24 | 10% |
| 7Y | 11.38 | 11.38 | 0.00 | 20% |
| 7.8Y | 11.65 | 11.62 | 0.03 | 32% |
Aside from the 1Y return difference (which would not last for long) the remaining years have less than 1Y return difference between a 100% equity index and a 65% equity index. Hence the reference to free lunch. A 35% addition of bonds in the portfolio makes less volatile* without significantly affecting reward.
* About 1% lower standard deviation over the last five years. The problem is investors expect a hybrid fund to act like it has 35% equity during market crashes. That is not possible.
At this point in time, many readers may ask, “why are AMCs not launching hybrid index funds?” The reason is profit. Launch active hybrid funds, offer big commissions and drive in AUM pitching “safer”, “less volatile” options especially when market uncertainty increases.
We had earlier established that Active mutual funds struggle to beat Nifty 50 for the last seven years! Large cap, mid cap, mid and small cap, small cap and multicap funds were part of that study. Unfortunately, aggressive hybrid funds have also joined in.
The top two aggressive hybrid fund (in this comparison) are
- Canara Rob Equity Hybrid Fund(G)-Direct Plan
- DSP Equity & Bond Fund(G)-Direct Plan
Are aggressive hybrid funds struggling because of the polarization in the market – just a few stocks driving the Nifty or Sensex up? Hard to say. For example, the DSP fund does not hold RIL while the Can Rob fund does. Most aggressive hybrid funds have 5-10% more equity than the CRISIL index.
Personally, I would prefer to hold actively managed aggressive hybrid funds than a Nifty index fund and in the absence of a hybrid index fund. As a middle-aged investor, I value that lower volatility while others may disagree. It is sure easy to sell index funds when you demonstrate their outperformance. Will those who prefer the “simplicity” of the index stay put when the lower half of Nifty 100 (or Midcap 150) moves above its Feb 2018 all-time high? Only time will tell.