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Swimming Against The Tide

Spreading its risk across Index heavyweights doesn't insulate Sun F&C Balanced from a collapse again. Investors are aware that this fund has a passion for equity, hence, they should factor in such a possibility and bet on it accordingly.

It has undergone a correction. This time round though it is betting heavily on tech biggies like Infosys, Wipro and Satyam, instead of the second-rung techies, as was the case earlier. Over the last couple of years, almost all balanced funds have fallen on hard times, but this particular fund was hurt very badly. Therefore, for the trailing two years, Sun F&C Balanced Fund is down 12.4% as against the peer's loss of just 4.9%.

Launched at the height of the tech frenzy, this fund spread its exposure to a slew of smaller names. In March 2000, second-rung tech stocks constituted 70% of its total tech holding (34%). And it paid a steep price for its aggressive bent. When the markets slipped from an all-time high in March 2000, the fund also fell sharply.

Well, it still didn't learn and continued to be tech-heavy till February 2001, making it a highly volatile fund. So, as anticipated it tumbled. Even the fund's defensive pharma picks like Morepen Laboratories, Pfizer and SmithKline Pharma -- which take up an average 10% allocation – couldn't come to its rescue. Consequently, despite heavyweights like Reliance Industries and HLL in its pocket, the fund was a below-average performer in its category throughout 2001 and trailed its rivals by a wide margin.

To offset the damage, the fund increased its exposure to high-quality debt instruments (average 18%). Initially, it swayed in favour of gilts (17% in March 2000), but later shifted focus to corporate bonds. In June 2001, AAA-rated bonds accounted for 33% of its portfolio. The equity downfall, however, was so huge that a good debt portfolio couldn't bear the burden thereby impacting the fund's return, which collapsed.

This didn't discourage Sun F&C Balanced from courting its old crush -- equity. Once again, it has started taking higher position in equities (75%), with technology accounting for 21%. But what could prevent a repeat performance is the fact that a major chunk of its portfolio is spread across Index heavyweights, which could act as a buffer. This has yielded positive gain in the past two quarters.

Sun F&C Balanced is a weak investment case.