This year has been especially volatile for equity markets in India. The Sensex has fallen by 10% over the past one month. If we compare with the all time high in early March, the Sensex is down over 15% (as on Sep 2). Balanced funds are attractive investment options for investors with moderate risk tolerance, especially during periods of high volatility. In fact over the last year balanced funds on an average have outperformed large cap funds category. DSP Black Rock Balanced Fund, which had been underperforming in a relative sense compared to its top performing peers in the balanced fund category, has made a smart turnaround over the past one year. In our opinion, outperformance in volatile market conditions is a good performance indicator for balanced funds. The fund has given more than 13% returns on a trailing annualized basis over the past one year, compared to the category average of 7.5%, a huge outperformance by the fund. Even on a 2015 year to date basis, DSP Black Rock Balanced Fund has outperformed the Balanced Fund category. The chart below shows the trailing annualized returns of the DSP Black Rock Balanced Fund compared to the Balanced Fund category across several timescales (NAVs as on September 2, 2015).
The DSP Black Rock Balanced fund is suitable for investors looking for long term capital appreciation with moderate levels of risk. As such the fund is suitable for investors in the moderate risk category planning for retirement or other long term financial objectives. The fund was launched in May 1999 and has nearly
र 770 crores of assets under management. The expense ratio of the fund is slightly on the higher side at 2.76%. The asset management company, DSP Black Rock, is one of most respected asset management companies in India. The fund managers of this scheme are Vinit Sambre and Dhawal Dalal. Morningstar has a 4 star rating for this fund.
The chart below shows the 1 year rolling returns of DSP Black Rock Balanced over the last 5 years. Rolling returns are the total returns of the scheme taken for a specified period on every day/week/month and taken till the last day of the duration. In this chart we are showing returns on every day during the specified period and comparing it with the benchmark. Rolling returns is the best measure of a fund’s performance. Trailing returns have a recency bias and point to point returns are specific to the period in consideration. Rolling returns, on the other hand, measures the fund’s absolute and relative performance the timescale in question, without bias. The orange line shows the 1 year rolling returns of DSP Black Rock Balanced Fund (Growth Option) and the black line shows the 1 year rolling returns of the benchmark, CRISIL Balanced Fund Index.
We can see that DSP Black Rock Balanced Fund’s performance was inconsistent till about from September 2010 to May 2013. In fact, for a period of 2 to 3 years, the fund was underperforming versus the benchmark. But the fund’s performance turned around from May 2013 onwards and since then till date, it has consistently outperformed the benchmark.
In terms of portfolio construction equity comprises 69% of the portfolio mix, while debt comprises 25% and cash equivalent comprises 5%. The fund has a predominantly large cap bias with a high growth focus. In terms of sector allocation of the equity portfolio, the fund has a bias for cyclical sectors, but also has substantial allocation of nearly 20% to defensive sectors. With the improvement of the macro-economic condition in India and revival of earnings growth in Indian companies cyclical stocks are likely to give good returns in the next few years. The fund is well diversified, with the top 5 stock holdings accounting for little over 20% of the fund’s portfolio. The debt portion of the portfolio has an average maturity of 5 – 6 years and hence has a high sensitivity to interest rate risk. With interest rates are expected to come down in the coming quarters, one can expect good returns from the debt portfolio of the fund as well.
Risk & Return
From a risk perspective, the volatility of the fund is slightly on the higher side. The annualized standard deviations of monthly returns of the DSP Black Rock Balanced fund for three to ten year periods are in the range of 13% to 18% respectively, which is on the higher side relative to the balanced funds category. However, on the basis of risk adjusted returns, as measured by Sharpe Ratio, the fund has outperformed the balanced fund category.
The fund has given 15.62% compounded annual returns since inception.
र 1 lac investment in the NFO of the fund (growth option) would have grown to around र 11 lacs by September 2 2015.
The chart above shows that a monthly SIP of
र 3,000 started 10 years back in the fund would have grown to over र 7.3 lacs by Dec 28 2014, while the investor would have invested in total only र 3.6 lacs.
DSP Black Rock Balanced Fund dividend option has a good dividend payout track record. The scheme also has a quarterly dividend option. The table below shows the dividend history of the fund.
DSP Black Rock Balanced Fund has completed over 15 years and staged a smart turnaround in performance over the past year or so. Investors with moderate risk profiles may consider this product for their retirement planning and other long term financial objectives, through systematic investment plans or lump sum route. Given its good dividend pay-out track record, investors who prefer dividends can invest in the dividend option of the DSP Black Rock Balanced Fund. Investors should consult with their financial advisors, if this scheme is suitable for their financial planning objectives.