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Rebalancing is a Continuous Process

Mahesh Patil, fund manager, Birla Sunlife 95, talks about the investment approach of his fund

Mahesh Patil, fund manager, Birla Sunlife 95, talks about the bottom-up approach followed by the fund for its equity portfolio.

Rebalancing is a Continuous Process Mahesh Patil, fund manager, Birla Sunlife 95

What is your approach to managing the equity portfolio of this fund?
The equity allocation in the fund is in the range of 65-75%. The management of the equity allocation would primarily follow bottom-up approach. The focus of the fund manager is to generate higher absolute returns by investing in companies with secular long term growth prospects and which are available at reasonable valuations. Due to this strategy, the allocation may deviate from the benchmark but would outperform the benchmark on a medium to long term time frame. The portfolio is well diversified across market capitalizations - large cap, mid cap and small cap. Currently the portfolio holds about 73% in equities out of which 39% is in large caps, 28% is in mid caps and 6% in small caps.

What is your approach to managing the fixed income portfolio of this fund?
The Fixed Income allocation is managed actively taking advantage of the opportunities available in the debt market. The portfolio takes exposure to sovereign bonds, corporate bonds and money market instruments. The focus is on carry of the portfolio where the securities are selected based on the risk adjusted return offered by the securities. Duration is also played but moderately based on fund manager's view on interest rates. Currently the portfolio runs modified duration of 3.98 with yield to maturity of 8.68%. It holds 27% in debt instruments out of which over 15% is in corporate bonds, over 7% is in government securities and about 5% in money market instruments.

How often do you rebalance your debt and equity allocation?
The fund would have an allocation of 65-75% in equities and the rest in fixed income. The level of equity allocation is based on valuations of the equity market and its medium term outlook. For most part of 2011, the equity allocation was at the lower end of the band but since Nov'13 it is at the upper end of the band due to positive medium term outlook on the equity markets. Once the level is set, the rebalancing happens on a continuous basis due to cash flows of the fund and due to market movement.

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