HDFC Balanced Advantage Fund Direct Plan Payout Inc Dist cum Cap Wdrl Opt INF179K01VY8

Under former manager Prashant Jain, the fund’s portfolio was constructed with a standard approach of investing 70%-75% of assets in equities and the balance in debt instruments. Under Gopal Agrawal, the investment approach is more flexible. The asset allocation is based on earnings yield/ G-Sec yield ratio to determine the attractiveness of the equity segment on valuations. Then an overlay of a few economic factors such as PMI, inflation, and GDP growth, among others, are applied to get the right equity exposure. Per the manager, the net equity exposure can go down to 40% depending on the market environment. But at a gross level, the allocation will be maintained over 65% using an arbitrage strategy. The fixed-income part is intended to provide stability to the portfolio, and therefore it is constructed with a straightforward approach, without big duration or credit bets.

While investing in a company, Agrawal looks for earnings drivers, either through volume expansion, input cost moderation, or market share gain strategies taken by the management. But that should be clearly visible. The primary focus is to generate reasonable returns consistently. While the strategy seems well-defined, its execution is the key, and that still needs to be tested over a longer time frame. We assign an Average Process Pillar for now.

The stock selection is bottom-up with a top-down overlay. The top-down approach is used to overweight or underweight sectors. Within sectors, Gopal Agrawal uses a bottom-up approach to scout for stocks that meet his selection criteria. He is valuation-conscious but is ready to be flexible on valuations under certain scenarios. For instance, if the businesses can innovate, launch new products, and maintain top-line margins and working capital cycle, then he won’t mind paying a premium and holding those companies as long as these factors are met.

Agrawal believes in constructing a diversified portfolio so that risk is reduced. He plies a benchmark-aware approach but is not benchmark-aligned. While investing he typically maintains sector deviation limits between 20% and 150% of the benchmark weighting, which leaves enough room for him to capitalize on opportunities in sectors where he has high conviction. Roughly 10% of the portfolio is allocated toward tactical opportunities, in line with his belief that some tactical allocation is required to help the fund clock incremental alpha.

On the fixed-income side, Anil Bamboli adopts a rather straightforward investment approach. He prefers investing in good quality securities issued by government banks and companies, topnotch private sector banks and NBFCs, and G-secs. The manager would avoid exposing the fund to big duration or credit risk.

The manager highlights that by having a flexible structure with respect to equity allocation, a diversified portfolio, and benchmark-awareness, the risk will be under manageable levels and returns will be consistent over the long term. However, this aspect needs to be tested over time.