DSP BlackRock Balanced Fund: Strong performance consistency over the last 4 years

Balanced funds are attractive investment options for first time mutual fund investors and investors with moderate risk capacities. Balanced Funds are hybrid equity oriented funds with more than 65% allocation to equity and the balance to debt instruments. Historical data shows that, equity as an asset class outperformed other asset classes over long investment tenures. While equity can give high returns in the long term, it is volatile in the short term; this is where debt portion of balanced funds limits downside risk in volatile markets and brings some stability in returns. Further, Balanced Funds are very tax efficient investments. Despite the debt allocation, balanced funds enjoy equity taxation; long term capital gains (holding period of more than 12 months) in balanced funds are tax free. Dividends paid by balanced funds are also tax free.

Read Can Mutual Fund Balanced Fund be your best bet

Within the balanced funds category, DSP BlackRock Balanced Fund, which had been underperforming in a relative sense compared to its top performing peers for some time, has made a smart turnaround over the past four years or so.

We had identified performance coming back in this fund in December 2015 and reviewed the fund which you can read here – Strong performance even in difficult market conditions

The chart below shows the trailing annualized returns of the DSP BlackRock Balanced Fund compared to the Balanced Fund category across several time scales (NAVs as on September 16, 2017).

Source: Advisorkhoj Research

You can see that, DSP BlackRock Balanced Fund outperformed the Balanced Fund category across all trailing time scales. The chart below shows the annual returns of DSP BlackRock Balanced Fund over the last 5 years. You can see that, post 2014, DSP BlackRock Balanced Fund has consistently outperformed the Balanced Funds category across different (both bull and bear market conditions); in our opinion this should be the hallmark of a good balanced fund.

Source: Advisorkhoj Research

Fund Overview

The DSP BlackRock Balanced fund is suitable for investors looking for long term capital appreciation with moderate levels of risk capacity. 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 Rs 5,691 Crores of assets under management (AUM). The AUM of this fund has grown multiple times over the last 2 years or so, highlighting the popularity of this fund among investors.

The expense ratio of the fund has declined to 2.47%, which is always good news for investors. The asset management company, DSP BlackRock, is one of most respected asset management companies in India, with several top performing funds in various categories in its product portfolio. The fund managers of this scheme are Atul Bhole, Pankaj Sharme and Vikram Chopra. The chart below shows the NAV growth of DSP BlackRock Balanced Fund over the last 6 years or so.

Source: Advisorkhoj Research

Rolling Returns

The chart below shows the 3 year rolling returns of DSP BlackRock Balanced Fund over the last 5 years. Rolling returns are the total returns of the scheme taken for specified investment tenures (3 years in this case) on every day, the last day of the duration. 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 over the time scale in question, without bias.

Source: Advisorkhoj Rolling Returns Calculator

We can see that DSP BlackRock Balanced Fund’s performance was just about average (slightly underperforming even) till about May 2013. But the fund’s performance turned around from May 2013 onwards and since then till date, it has consistently outperformed the balanced fund category in terms of 3 year rolling returns.

The maximum three year rolling returns of the scheme DSP BlackRock Balanced Fund over the last 5 years was 25.7%. The minimum three year rolling returns of the scheme over the last 5 years was 11.4%. The average three year rolling returns of the scheme over the last 5 years was 18.3%, while the median 3 year rolling returns was 17.5%. DSP BlackRock Balanced Fund gave 15% or more 3 year rolling returns, more than 82% of times over the last 5 years. The 3 year rolling returns of the scheme shows strong performance consistency. The performance consistency of this fund in terms of rolling returns is reinforced by our Top Consistent Mutual Fund Performer Tool. DSP BlackRock Balanced featured in the two top performance quartiles, 4 times in the last 5 years, making it one of the most consistent performers among balanced funds.

Portfolio Composition

In terms of portfolio construction equity comprises 75% of the portfolio mix, while debt comprises 23% and cash equivalent comprises 2%. Over the past year or so, the fund managers have tactically increased the equity allocation. The fund has a predominantly large cap bias with a high growth focus. Large cap stocks account for around 75% of the equity portfolio. In terms of sector allocation of the equity portfolio, the fund has a bias for cyclical sectors like banking and finance, automobiles and auto ancillaries, cement and construction, oil and gas etc. 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 debt portion of the portfolio has an average duration of 2–3 years. The debt portfolio has limited sensitivity to interest rate risk. The credit quality of the debt portfolio is excellent. 97% of the debt portfolio is rated AA or higher (vast majority of the debt portfolio is AAA rated).

Source: Advisorkhoj Research

Risk & Return

From a risk perspective, the volatility of the fund is slightly higher than balanced funds as a category. However, on the basis of risk adjusted returns, as measured by Sharpe Ratio, the fund has outperformed the balanced fund category.

Rs 1 lac investment in the scheme (growth option) would have grown to over Rs 2.1 lakhs in the last 5 years.

Source: Advisorkhoj Research

The chart below shows the returns over the last 5 years of Rs 5,000 monthly SIP in the DSP BlackRock Balanced Fund (growth option).

Source: Advisorkhoj Research

The chart above shows that a monthly SIP of Rs 5,000 started 5 years back in the fund would have grown to over Rs 4.7 lakhs by now (September 18, 2017), while the investor would have invested in only Rs 3 lakhs on a cumulative basis. The XIRR of SIP over the last 5 years was nearly 18%.

Dividend History

DSP BlackRock Balanced Fund dividend option has a good dividend payout track record. The table below shows the monthly dividend payout track record of the scheme over the past 2 years or so.

Source: Advisorkhoj Historical Dividends

Conclusion

DSP BlackRock Balanced Fund has completed over 18 years. Investors with moderate risk profiles may consider this product for their 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 BlackRock Balanced Fund.

Those investors who need regular monthly withdrawal from their balanced fund investments can read how the SWP return from this fund had been so impressive

Investor can also check this SWP tool on our Research Section

Investors should consult with their financial advisors, if this scheme is suitable for their financial planning objectives.