Sundaram Balanced Fund understands the tenets of balanced funds very well. In its four-and-a-half years of investing life, Sundaram Balanced Fund has not only earned decent returns for its investors, but has also protected them through the ups and downs of the markets.
The true balanced nature of the fund is reflected in the way it has tackled market rallies. While it has responded well to all of them, it has maintained an equilibrium, unlike some its peers. For example, the fund did not go overboard in technology stocks in 2000 and showed a disciplined approach towards banking stocks in 2003. Similarly, in the first quarter of 2002, when energy stocks were ablaze, Sundaram Balanced Fund held a mere 3 to 4 per cent in the sector, while some of its aggressive peers had nearly 10 per cent of their assets in energy stocks.
Of course, this balanced approach has only resulted in average returns, but that's what balanced funds aim for--decent returns with minimum risk. In 2001 when the markets were in the grip of bear phase, the fund shed only 4.47 per cent against the negative 9.71 per cent return of its average peers.
However lately, it seems to be aiming for an aggressive identity. Consider this: since December 2003, the fund has held over 40 per cent of its equity assets in small- and mid-cap stocks together. As on November 30, 2004, the fund had 54.87 per cent of equity assets in this group, with as much as 32.88 per cent in small-caps. Mid- and small-caps are risky and so against the nature of balanced funds. So far, however, the strategy has worked due to the recent rally.
Extreme caution is obvious in the way the fund is managing its debt portfolio. There has been a marked shift in the portfolio from AA rated bonds to AAA bonds since August 2003 when it had almost 9 per cent of its debt assets in AA bonds. The exposure has increased to 24.31 per cent in November 2004 from a mere 0.06 per cent in October 2003. In fact the fund had increased exposure to AAA papers to as much as 35 per cent in July 2004.
Despite its recent fascination with volatile mid- and small-caps, the fund has generated returns in line with the category averages and continues to look impressive.
This article was originally published on March 10, 2005.
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