The Fund is suitable for those investors who do not want the hassle of investing in a basket of products that need to be rebalanced at regular intervals says Mahesh Patil.
What is your asset allocation policy / strategy? Do you try to surrogate equity with arbitrage positions?
Birla Sun Life Balanced' 95 fund invests money in both stocks and bonds. The fund's objective is to benefit from capital appreciation of stocks and active management & regular income of fixed income allocation to generate a positive contribution to fund performance. The fund keeps an allocation between the two asset classes pretty steady, usually placing about 65-75% of its assets in stocks and 25-35% in bonds. Over the last 3 years fund has maintained an average exposure upto 71% towards stocks and balance to debt instruments. The fund does not resort to any arbitrage positions. Exposure to equity is taken for long only positions. Fund is suitable for those investors who do not want the hassle of investing in a basket of products that needs to be rebalanced at regular intervals.
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 70.5% in equities out of which 65% is in large caps, 25% is in mid caps and 10% in small caps.
What is your approach to managing the fixed income portfolio of this fund?
Within the debt portfolio, investments are predominantly made in quality debt instruments (mix of G-secs and corporate bond instruments). The portfolio is managed actively using a blend of duration & accrual strategies. The choice of investing in G Sec - Corporate bond or carry/spread assets would depend on the relative valuation, and, the preference for one security over the other may change from time to time owing to which, overall maturity may vary. In a relatively unfavourable interest rate scenario, the fund manager may increase exposure to corporate bonds and benefit from accrual income. Currently the portfolio runs modified duration of 8.15 with yield to maturity of 8.35%. It holds 29.5% in debt instruments out of which over 11.1% is in corporate bonds, over 71.3% is in government securities and about 17.6% in money market instruments.
How often do you re-balance your debt and equity allocation?
The fund would usually maintain 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 instance in past for most of 2011, the equity allocation was at the lower end of the band but since Nov'13 it was 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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