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Balanced funds not so well-balanced - Views on News from Equitymaster
 
 
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  • Apr 19, 2000

    Balanced funds not so well-balanced

    The way stock markets have been hammering technology stocks over the past few days, maybe mutual fund investors should look for some well-balanced portfolios. But are there any around? A study conducted by equitymaster.com reveals a lack of balance in most Balanced Schemes.

    We have been talking about how technology fund NAVs have fallen dramatically in the past 3-4 days with the bloodbath in the stock markets. Equitymaster.com had advised investors to adopt a wait and watch attitude till the picture becomes a wee bit clearer.

    Under such turbulent times, balanced funds would normally have been an option for the cautious investor, that’s right ‘would normally have been’, but unfortunately they aren’t. A study by equitymaster.com shows that Balanced Schemes have been mirroring the trend witnessed in Software Funds. Balanced Scheme NAVs have been falling just as fast as those of Software Schemes. Why is that? You got it – a bloated exposure to software stocks, defeating the very purpose of a balanced fund.

    Softsware Schemes NAV (Rs) as on  
      17-Apr-00 13-Apr-00 Change (%)
    Alliance New Millennium (Div) 11.0 11.9 -7.23%
    Alliance New Millennium (Gr) 11.0 11.9 -7.25%
    Birla IT Fund (Div) Plan A 23.6 25.3 -6.79%
    Birla IT Fund (Gr) Plan B 25.8 27.7 -6.83%
    KP Infotech Fund (Div) 25.7 27.7 -7.16%
    KP Infotech Fund (Gr) 37.6 40.5 -7.17%
    KP Internet Opportunities Fund (Div) 9.0 9.3 -3.33%
    KP Internet Opportunities Fund (Gr) 9.0 9.3 -3.33%
    Pru ICICI Technology Fund(Div) 7.9 8.4 -6.06%
    Pru ICICI Technology Fund(Gr) 7.9 8.4 -6.06%
    Magnum IT Fund 22.7 24.6 -7.81%

    Balanced Schemes NAV (Rs) as on    
       17-Apr-00  13-Apr-00  Change
    (%)
     Exposure to
    software (%)
    Alliance 95 Fund (Div) 50.57 53.01 -4.60% 20%+
    Alliance 95 Fund (Gr) 63.19 66.24 -4.60% 20%+
    Birla Balance (Div) 13.65 14.43 -5.41% 40%+
    Birla Balance (Gr) 13.65 14.43 -5.41% 40%+
    DSP-ML Balanced Fund (Div) 10.65 11.01 -3.27% 24%+
    DSP-ML Balanced Fund (Gr) 11.89 12.30 -3.33% 24%+
    Dundee Balanced Fund (App) 8.86 9.21 -3.84% NA
    JM Balanced Fund (Div) 12.90 13.92 -7.33% 37%+
    JM Balanced Fund (Gr) 18.63 20.12 -7.41% 37%+
    K Balance Unit Scheme 99 11.32 11.71 -3.34% 34%+
    KP Balanced Fund (Div) 10.05 10.45 -3.83% 30%+
    KP Balanced Fund (Gr) 10.05 10.45 -3.83% 30%+
    Pru ICICI Balanced Fund (Div) 11.18 11.82 -5.41% 30%+
    Pru ICICI Balanced Fund (Gr) 12.06 12.76 -5.49% 30%+
    Magnum Balanced Fund 20.25 21.33 -5.06% 48%+

    The two tables above show how closely Balanced Schemes have mirrored the fall in Software Funds. Fund managers in their over-enthusiasm have taken huge exposure to software stocks, in effect, neutralising the objectives of a Balanced Scheme.

    Investors investing in Balanced Schemes are the cautious type, who want their NAVs to be as stable as possible, even in times of volatility. But with the over-exposure to software, investors are getting just the opposite. They must be wondering that if balanced funds are going to duplicate the performance software funds so closely, they might as well invest in software funds. Moreover, with the heavy exposure to software stocks, the lines of demarcation between software, growth and balanced funds are fast disappearing. Investors need to look at their portfolios more carefully, and judge for themselves what they are getting into.

     

     

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