Conservative hybrid funds are aimed at investors seeking relatively lower volatility than Equity heavy funds while retaining Limited equity exposure for potential upside.

In line with regulatory mandate, these schemes invests predominantly in debt with smaller equity allocation.

The category may appeal to cautious investors and savers with medium term needs of three to five years who are unwilling to take sharp equity market swings.

Within this category SBI Conservative Hybrid follows relatively higher yielding debt strategy than many of its peers.

The firm has generally maintained close to 25% in equity and 75% in Debt/Fixed Income.

Active Duration

On the debt side, the fund seeks returns through a hike of interest rate calls and higher interest income from selected corporate bonds. The fund generally keeps its Macaulay duration, a measure of the average time taken to receive bond cash flow within two to five year range. Its currently near the shorter end at around 2.5 years.

High Yield Opportunity
A key source of additional yield is the funds exposure to corporate bonds rated below AAA. These currently make up about 35% of the portfolio and may rise to 45% when there is opportunities.

The strategy seeks to earn the return yield offered by corporate bonds over government securities in return for taking higher issuer risk.

Flexicap Strategy

The equity portfolio is measured against the BSE 500. Its typically holds around 40 stocks and can invest across large mid and small cap companies. The funds equity strategy aims to identify stocks with strong earning potential, robust financials, high governance standards and sound ESG policies.

Currently the equity portfolio has a strong small cap tilt with exposure close to funds stated upper limit of 50% of its equity portion.
According to us, recent corrections have created stock specific opportunities in small caps after sharp declines in several companies.
The equity allocation is currently fully invested with the fund maintaining close to the maximum permissible 25% equity exposure and negligible cash holdings on the equity side.

Performance

Over five year rolling periods, observed during past seven years, the fund delivered an average annualized return of 11%.
Given its sizeable exposure to lower rated debt and its small cap tilt within equities. The fund may suit investors willing to accept moderate credit and equity risk with an investment horizon of at least five years.

Why Invest?

• Flexicap oriented equity allocation
• Ranked in top quartile across time frame
• Suitable for investors looking good option against 5 year FD.

Blog by Mr Santosh G Akerkar for educational and knowledge purposes only.

Best Regards,
Santosh Akerkar