This turnaround champion has done it once again. When we had reviewed the fund in August last year, DSPML Balanced was in a spot of bother. Its out-of-favour large-cap orientation made it under perform in four successive quarters. After much debate, we still reposed faith in the fund's preference for a quality portfolio and stability. This fund has proved us right by turning the tide in its favour once again and that too by sticking to large-cap portfolio. Struggling in the bottom quartile in the first half of 2005, the fund did well to catch up with peers in the second half. Finally, it ended the year up 31.16 per cent, marginally short of the category average return of 32.56 per cent.
The fund's basic engineering picks including Siemens and BHEL, looks brilliant on the hindside. Mid- and small-cap engineering stocks like Bharat Earth Movers, Thermax and FAG Bearings, proved hugely rewarding. The fund's energy picks too did reasonably well. Additionally, select chemicals, construction and consumer non-durable stocks like Balrampur Chini, ITC and Williamson Tea Assam helped the fund stage a recovery in the second half of 2005. The fund had staged a similar comeback in the past as well. For instance, it reacted to the underperformances in 2000 and 2001 by substantially cutting exposure to tech stocks to find a place in the top-half of the category in 2002. In the next two years, it was one of the best five funds in the category.
A large-cap, diversified equity portfolio together with quality debt holdings has worked for the fund. Barring few occasions, especially during equity market rallies, the fund has re-balanced its portfolio and restricted equity exposure to around 60 per cent. In the recent times though, the fund has spread the equity portfolio to over 50 per cent. Also, it maintains a high cash position. While this could be a defensive ploy in view of the prevailing booming markets, over-diversification and idle cash can dilute overall returns.
On the debt side, the fund has been quality conscious. However, lately, while the debt allocation has been restricted to around 25-30 per cent, the fund has started betting on below AAA papers to boost returns. In the past six months, below AAA papers have occupied over 8 per cent of the portfolio.