Strong wealth creation track record of Aditya Birla Sun Life Advantage Fund

There are a few multi-cap funds which have stood the test of time and have given stellar returns over a long time period that included multiple market cycles (both bull and bear markets). Aditya Birla Sun Life Advantage Fund recently completed over 23 years of strong performance. Rs 1 Lakh invested in this fund at the time of its NFO would have grown to over Rs 48 Lakhs – an annualized return of more than 18% CAGR over the 23 years.

While this is truly outstanding performance over such a long period, what appeals to us about this fund is that, it has been able to sustain its outperformance, even over the last 3 to 5 years. The chart below shows the trailing annualised returns of Aditya Birla Sun Life Advantage fund (as on April 3, 2018) versus its benchmark index (S&P BSE – 200) and the diversified equity funds category over various time-scales.

Source: Advisorkhoj.com Research

What is even more impressive about Aditya Birla Sun Life Advantage fund is that, it has been among the most consistent multi-cap mutual schemes over the last few years. It is true that, over the last 3 months, Aditya Birla Sun Life Advantage fund has been lagging behind its peers, but our regular blog readers know that, we do not assign much importance to very short term performance because it is biased by market conditions relative to the fund manager’s investment strategy.

Aditya Birla Sun Life Advantage fund was a top quartile fund in four out of the last five years. In Advisorkhoj.com, we have built a research tool which measures quartile performance in each calendar year, over the past few years. Our proprietary algorithm ranks the most consistent performers based on quartile performance in the last 5 years (please see our tool, Top 10 mutual funds in India). We take 5 years of performance into account in our algorithm to rank the most consistent performers, because 5 year time period usually covers multiple market cycles. If a fund is able to outperform in different market conditions, historical data analysis shows that, it is likely to deliver superior outperformance in the future too. We strongly encourage our readers to use our Top 10 mutual funds in India tool to evaluate mutual fund schemes for investments.

Fund Overview

Aditya Birla Sun Life Advantage Fund, a multi-cap equity fund, was launched in February 1995. The scheme’s AUM base multiplied several times over the last 3 years on the back of strong performance and now stands at over Rs 5800 Crores. The expense ratio of the fund has come down over time and is now at 2.3%. The fund is managed by Satyabrata Mohanty. Other funds managed by Satyabrata have given good returns over the past 3 to 5 years. The chart below shows the annual returns of the Aditya Birla Sun Life Advantage Fund over the last 5 years.

Source: Advisorkhoj.com Research

Portfolio Composition

Aditya Birla Sun Life Advantage Fund is a multi-cape quity fund that aims to achieve long-term growth of capital with relatively moderate levels of risk through a research-based investment approach. We believe that the growth opportunities presented by equities, mostly belonging to S&P BSE 200 Index, can be tapped with relatively lower risk. This fund does so by identifying and investing in companies with sound corporate management and prospects of good future growth.

While investing in the stock of a company, the fund considers past performance but its focus remains on long-term value driven by company’s fundamentals. The investment emphasis of the Scheme would be on identifying companies with sound corporate managements and prospects of good future growth. Past performance will also be a major consideration. Essentially, the focus would be on long-term fundamentally driven values. However, short-term opportunities would also be seized, provided they are supported by underlying values.

3 years back, the scheme portfolio was evenly balanced between large cap stocks and small / midcap stocks, but with small / midcaps trading at a fairly large premium to large cap stocks, the fund manager re-calibrated the market capitalization weights in the scheme portfolio, by increasing his allocation to large cap and reducing allocation to midcap. Large cap stocks now comprise nearly 66% of the Aditya Birla Sun Life Advantage Fund’s portfolio, while midcap and small cap stocks comprise around 34%. This carefully tuned re-calibration is evidence of prudent risk management philosophy of the fund manager.

In terms of sector allocation, the portfolio has a heavy bias towards cyclical sectors like Banking and Financial Services, Automobiles and automobile, Construction, Oil and Gas, Consumer Durables etc. With Index of Industrial Production (IIP) growth steadily inching up and stronger GDP growth, there are signs of revival in the private capex cycle, which bodes well for industries in the cyclical sector. The investment strategy of Aditya Birla Sun Life Advantage fund in relation to the favourable macro-economic developments over the past few quarters and also the long term growth potential of India, positions this fund strongly in the moderate to long term, the short term volatility (at present) notwithstanding.

In terms of company concentration, the scheme portfolio is fairly well diversified with the top 5 holdings accounting for only 23% of the total portfolio value. Even the top 10 company holdings account for less than 39% of the total portfolio value.

Source: Advisorkhoj.com Research

Rolling Returns

Regular Advisorkhoj blog readers know that, we give a lot of importance to Rolling Returns. Rolling returns, we believe, are the best performance measure of a mutual fund scheme, because they are not biased by certain market conditions. The other advantage of rolling returns is that, you can select a holding period (also known as the rolling returns period) of your own choice – not necessarily a one year holding period. You can do the same with trailing returns, but the drawback of trailing returns is that, the holding period ends on the last NAV date, which means that trailing returns are biased by the current market conditions. In the case of rolling returns, the holding period can be over any span of time and hence it is not a biased measure.

In Advisorkhoj, we usually recommend a rolling returns period (holding period) of at least 3 years for equity funds, because equity investors should be prepared to hold their investments for at least 3 years to allow for the market recover, in the event that the investor gets hit by a bear market during his / her investment tenure. Moreover, historical data shows that, investors get better returns over a longer holding period.

Next comes the period, over which the rolling returns are measured. Regular Advisorkhoj blog readers would have noticed, we usually measure rolling returns over 5 years. This is because a 5 year period is likely to cover multiple market cycles, which will enable the investors to evaluate the performance of the fund in different market conditions. Investors can use a period longer than 5 years also, but investors should bear in mind that, over a long period many things can change like, fund manager, investment strategy, the maturity of the market itself (especially, here in India) etc.

The chart below shows the 3 years rolling returns of Aditya Birla Sun Life Advantage fund versus the benchmark index over the last 5 years.

Source: Advisorkhoj.com Rolling Returns Calculator

Fund managers are tasked with beating the benchmark index over a sufficiently long investment horizon. You can see in the chart above that, the fund manager of Aditya Birla Sun Life Advantage fund performed this task admirably across different market conditions. While, the fund manager was able to beat the benchmark consistently, was he able to beat the peer funds as consistently? The chart below shows the 3 years rolling returns of Aditya Birla Sun Life Advantage fund versus the average 3 year rolling returns of all schemes in the diversified equity mutual fund category over the last 5 years.

Source: Advisorkhoj.com Rolling Returns Calculator

Aditya Birla Sun Life Advantage fund was able to beat both the benchmark and the scheme category in terms of 3 years rolling returns over the last 5 years – this is why, Aditya Birla Sun Life Advantage fundis one of the most consistent performers.

Lump Sum and SIP Returns

Rs 1 Lakh lump sum investment in the Aditya Birla Sun Life Advantage Fund (growth option) 5 years back would have grown nearly 3 times. The chart below shows the growth of Rs 1 Lakh investment in the Aditya Birla Sun Life Advantage Fund (growth option). The annualized lump sum return in the last 5 years is around 23% CAGR.

Source: Advisorkhoj.com Research

The chart below shows the returns over the last 5 years of Rs 5,000 invested monthly through SIP route in the Aditya Birla Sun Life Advantage fund (growth option). The SIP date has been assumed to first working day of the month. The chart below shows the SIP returns of the fund (NAVs as on April 3, 2018).

Source: Advisorkhoj.com Research

The chart above shows that a monthly SIP of Rs 5,000, started 5 years back in the Aditya Birla Sun Life Advantage fund (growth option), would have grown to over Rs 4.7 Lakhs by April 3 2018, while the investor would have invested in total only about Rs 3.0 Lakhs. The annualized SIP return (XIRR) is over 18% over the last 5 years.

Conclusion

Aditya Birla Sun Life Advantage fund has completed 23 years of strong performance. It has created wealth for its long term investors. This fund is suitable for investors looking for high capital appreciation over a long time horizon, for long term financial objectives, such as retirement planning, children’s education etc. Investors looking for regular dividend payments can also invest in the dividend option of the fund. Investors can consider investing in the scheme through the systematic investment plan (SIP) or lump sum mode with a long time horizon. Investors should consult with their financial advisors, if Aditya Birla Sun Life Advantage Fund is suitable for their investment portfolio.