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Balanced funds; Unbalanced Portfolios

Despite a monumental fall in the tech meltdown, balanced funds have persisted with their imbalanced asset allocation and tech-heavy portfolios. Balanced funds have defied their spirit - of providing steady returns with prudent risk management.


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Once bitten but never shy! Despite a monumental fall in the tech meltdown, balanced funds have persisted with their imbalance asset allocation and tech-heavy portfolios. As many as 19 balanced funds are now trading below par and have defied their spirit - of providing steady returns with prudent risk management.

In the post-budget meltdown, balanced funds have lost a little over 10%, which is alarming, since the category of diversified equity funds has dropped by only 14%. Further, balanced fund managers have failed to stem the loss despite an average 35% debt exposure. And in what appears to be a re-run of 2000, some balanced funds have lost nearly as much as the equity funds in the same AMC. Surely, this obviates the need for either of the two funds if the AMCs have to simply replicate portfolios across different risk-return spectrum! Else, fund houses should forego their management fee since fund management skills are conspicuous by their absence.

The worst hit in the current melee is ING Balanced Portfolio with a loss of nearly 18% between February 28 and March 16. Though ideally balanced, it is the concentrated bundle of technology stocks that has proved to be the fund's nemesis. The fund has 100% of its equity holdings in ICE scrips and there is little to differentiate it from the AMC's equity fund, ING Growth Portfolio. Thus, even though the fund has a strong cushion with a 45% debt exposure, it has failed to guard the free fall in NAV.

It's no different with Magnum Balanced, which has seen its NAV eroded by over 14% in the equity blizzard. With a 70% equity exposure and 26% investments in technology stocks, the fund's NAV is now marginally above par. Further, the fund has a higher exposure to middle-rung companies like Ramco Systems, Mukta Arts and Mid-Day Multimedia.

Yet, some balanced funds have diluted and diversified their equity holdings after being mauled last year. For instance, Birla Balance had lost a whopping 41 per cent in mere two months last year with 80% holding in equities and 51 per cent investment in technology stocks. However, the portfolio now gives a different picture with equity allocation down to 65%. Further, the technology exposure has been virtually halved to 26%. No wonder, the fund has lost only 9.7% in the current slump.

Surely, balanced fund managers need to re-work their investment strategies and generate returns in line with risk tolerance. Investors in these funds are a different class, who have graduated from debt or monthly income plans for better returns but their primary concern still continues to be safety of principal. Asset management companies have, for long, been preaching the virtues of a balanced portfolio. Its high time they reflected the advantages in their strategy and performance numbers!

 
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