HDFC Balanced Advantage Fund (BAF) belongs to the category of dynamic asset allocation or balanced advantage fund category. The aim of funds in this category is to change allocation to debt and equity based on market conditions, basically means increase allocation to debt if markets are at a high and increase allocation to equity if equity markets have gone down.
Within this category HDFC BAF has been an outperformer and has given the following returns:
1 year - 14.25% (category avg of 10.24%)
3 year – 20.19% (category avg of 9.86%)
5 year – 19.97% (category avg of 11.47%)
10 year – 14.12% (category avg of 9.32%)
Such a consistent outperformance within a category that too by a large margin has not happened in any other category. Looking at this data it may suggest that whoever is looking for balanced advantage funds, HDFC BAF should be the automatic choice. However, if we look a bit further, within BAFs; funds are deploying different strategies due to which the returns and risks are varying.
If we look at the standard deviation, HDFC BAF has a standard deviation of 9.5 as compared to ICICI BAF which has a standard deviation of just 5.18, other funds in the category (Kotak, SBI, Nippon) also have a standard deviation a little upwards of 6. Hence HDFC BAF has provided higher returns by taking higher risks as well. The standard deviation of HDFC BAF is similar to that of funds in the category of hybrid aggressive funds which invest upto 65% of funds in equity and rest in debt.
Let us look at what happened during the Covid crash and how much of downside protection HDFC BAF could provide. The average NAV (direct scheme) for HDFC BAF for 2019 was 202.9 and on 23rd March 2020 the NAV had dropped down to 142.6, this means a downside or negative returns of almost 30%. For ICICI BAF the same number is ~21% and for NIFTY 50 the same number is ~ 33%. This means that the downside protection of HDFC BAF is more close to that of NIFTY 50 than ICICI Balanced Advantage Fund#.
While it is clear that HDFC BAF is the best in its category in terms of consistent high returns, it is not the best amongst the category in its downside protection. If an investor’s main objective to not invest in a pure equity fund and invest in BAF is for downside protection or low volatility there may be other funds he could look at in the category. For investors looking more at returns (even better than large caps) with a lower risk this fund could be worth analyzing.
Note:
1. None of the funds mentioned in the article are to be taken as a recommendation to invest in that fund
2. Source of all returns and standard deviation is www.advisorkhoj.com, returns and standard deviation data is as on 18th January 20225
3. #Source of all NAV data in the paragraph is www.amfi.com and returns data as analyzed by Shwealth
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