Choosing a balanced advantage fund? Look beyond returns to strategy, risk
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar pointed out that heavy bets on a few sectors make a fund more volatile and that credit risk in the debt portion can weaken downside protection. He suggested comparing rolling risk-adjusted returns over full cycles and holding such funds for at least three to five years.
What Abhishek Kumar said
How do sector bets affect a balanced advantage fund?
When I study the portfolio of a balanced advantage fund, I look at how much it is concentrated in particular sectors or stocks. Heavy bets on a few sectors can make the fund a lot more volatile. That works against the smoother experience most investors are looking for when they choose this category. So I look closely at sector and stock concentration in the equity portion.
Why does the debt portion of a balanced advantage fund matter?
The fixed-income side needs as much scrutiny as the equity side. If the debt portion takes on credit risk, it can defeat the very purpose of downside protection, which is one of the main reasons to hold such a fund. Lower-rated papers may pay more, but they carry that risk. So I always look at the credit quality of the debt holdings and not only at the equity allocation.
How do I judge whether a fund's asset allocation is actually working, and how long should I stay?
I suggest comparing the fund's rolling risk-adjusted returns with its category benchmark over full market cycles, not over one good or bad period. That shows whether the asset allocation is adding genuine value or whether the fund is simply riding momentum. And give it time: I would plan to stay invested in a balanced advantage fund for three to five years at the very least.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on mutual funds
With balanced advantage funds raising their equity exposure, the article explains what investors should check beyond past performance. It covers the allocation models these funds use, historical equity ranges, portfolio construction, debt credit quality, risk measures such as downside capture and the Sharpe ratio, and warning signs like strategy drift.
Publisher source
Choosing a balanced advantage fund? Look beyond returns to strategy, risk