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Aarati Krishnan

THOSE holding units in Sundaram Balanced Fund can stay with the fund for now. Given the fund's relatively short track record, new investors can wait and evaluate performance for another year before considering investments. The fund has outperformed its balanced benchmark in the 20 months since launch. Its performance may compare unfavourably with some of the other balanced funds on account of a couple of factors.

One, the fund has used periodic rebalancing of the portfolio to stick to its rather conservative asset allocation pattern (of retaining 55 per cent or less of its assets in equities). Two, the fund's debt portfolio appears to be rather passively managed. While other balanced funds have taken active advantage of the trading opportunities in gilts over the past year, Sundaram Balanced has invested mainly in corporate debentures.

The fund has appreciated around 1.4 per cent in value since launch, while the S&P CNX Nifty lost around 21 per cent over the same period. An appropriate balanced benchmark with a 55:45 balance between equity and debt would have lost around 2 per cent in value since the inception of the fund.

An evaluation of the fund's portfolio over the past year reveals the following features:

The fund claims that the portfolio strategy is passive in asset allocation, and active in stock picking. That is, the allocation between equity and debt is pre-determined, and the fund rebalances its portfolio from time to time to stick to the present equity:debt mix. The changes in the portfolio over the past year bear out this claim.

The fund appears to have rebalanced the equity portion of the portfolio during the sharp spurts in equity market levels. There have been a couple of occasions in February 2001 and in January 2002 when the equity portion edged close to 55 per cent mark. But the portfolio had been rebalanced in the succeeding month, reducing the equity portion.

This approach increases the comfort levels and ensures that the fund is not over-invested in equities in a bull market. However, the balanced approach could also prevent the fund from taking full advantage of any sustained rally in equities that lasts for a long period of time. This is also borne out by the performance. While it has comfortably beaten several of its peers in the bear market, it has been outpaced by its more aggressive counterparts in the recent rally in equities. This may remain the pattern in the future too.

The equity portion of the portfolio appears to have been churned quite frequently, with the top holdings undergoing substantial changes from month to month. Between September 2000 and now, the fund's sectoral allocations have undergone a significant change in character. From being invested mainly in growth stocks in the IT, consumer and FMCG sectors, the fund has moved to a portfolio oriented more towards cyclicals.

Between September 2000 and February 2002, the fund has cut exposures to IT stocks from 16 per cent to 8.4 per cent. The combined exposures to consumer and pharma stocks has moved from around 12 per cent to 16 per cent. Several cyclicals have made an entry into the portfolio, mainly since March 2001. Since March 2001, the fund has acquired exposures of 1-3 per cent each in basic metals, cement, capital goods, oil and gas, petroleum and diversified companies.

The equity portfolio is more diversified now that a year ago, with a larger number of stocks and sectoral exposures. The fragmentation of the equity portfolio, while it may reduce risk, requires the fund to make a large number of calls on its investments.

Fund facts: Sundaram Balanced Fund was launched in June 2000. The fund charges an entry load of 1.5 per cent and is managed by Anand Radhakrishnan.

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