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Safe and Sound

Resolutely shunning all adventurism, Sundaram Balanced has struck to the basic formula for a well-run balanced fund. The fund seems to know its priorities well and is well poised to be a core holding for investors seeking protection from bear markets

Discipline. If one were to describe the investing behaviour of Sundaram Balanced in one word, then that would be the word. This fund has struck to the basic formula for a well-run balanced fund: consistent asset allocation; a well-diversified equity portfolio where stocks stay for the long haul; and in debt, the risk of high-yield bonds tempered by a low exposure to gilts.

This philosophy was on display during the turbulent years of 2000 and 2001. Sundaram Balanced didn't indulge itself in over-priced tech stocks and sailed through 2001 with a loss of just 4 per cent, against a category average loss of 9.1 per cent. Even later, tech has seldom dominated the equity portfolio, with allocation to the sector averaging around 8-10 per cent. And lately, it has reduced exposure to this volatile sector, with the allocation down to just around 5 per cent.

While the fund does fine-tune its portfolio to be a part of various sector-led rallies from time to time, its aversion to being overweight on any particular sector means that its gains—and risk—from such moves will be considerably less than its more aggressive peers. When the energy stocks rallied in the first quarter of 2002, Sundaram Balanced held 3-4 per cent in the sector while the top performers during the period held nearly 10 per cent in energy stocks. Thus, the fund ended up in the second quartile.

Similarly, the fund did buy PSU bank stocks during the run-up in late 2002 and early 2003, but has pruned its exposure now. Still, the fund's buy-and-hold strategy for stocks like ONGC (since May 2002) and SBI (since September 2001) is reaping rich dividends now.

The debt portfolio has seen a shift towards quality, as the allocation to high yielding but below AAA rated bonds has come down from an average 19 per cent in 2002 to 9.78 per cent in August 2003. While largely staying away from gilts during its tenure, it has actively sought them in recent months only to finally exit in September.

At the end of the day this fund is as diversified as they get. When looking for protection against the bears Sundaram Balanced is a good choice. The discipline and consistency of this balanced fund will thus be rewarding over the long haul.