SBI Equity Hybrid Fund: Protecting the Portfolio from Downside Risk

Past performance is not an indicator of future returns
Data as on September 28, 2022
(Source: ACE MF)

Although SBI Equity Hybrid Fund has at times struggled to keep pace with the benchmark and the category average, it has rewarded investors reasonably over the long run. Over the longer time period of 5-year and 7-year, SBI Equity Hybrid Fund stands among the top quartile performers in the category and ahead of the benchmark. Even on the shorter 1-year and 2-year periods, it has generated a noticeable lead over the benchmark index and many of its prominent peers.

SBI Equity Hybrid Fund has shown a fair level of stability as well. Its standard deviation of 16.47 signifies that the fund's volatility is higher than the benchmark (15.27) but well below the category average (17.76). Its risk-adjusted returns, as denoted by the Sharpe Ratio (0.19), is on par with that of the benchmark and the category average, denoting the fund's ability to generate a fair premium for the risk taken.

Investment strategy of SBI Equity Hybrid Fund

SEHF aims to provide investors with opportunities for long-term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. Accordingly, the fund invests a minimum of 65% of its assets in equity and equity-related instruments, while it can allocate 20%-35% of its assets in debt and money market instruments at any point of time.

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It holds a diversified portfolio of stocks of high-growth companies and balances the risk through investing the rest in moderate to high-rated fixed-income securities. The fund manager follows the bottom-up approach to stock-picking and is selective while choosing companies for the portfolio. The fund manager looks to invest in high growth-oriented stocks of companies across market caps but is cautious about the price he is willing to pay for the stock and prefers holding most of them with a long-term view.

On the debt front, the fund diversifies its portfolio across a range of moderate to high-rated instruments of medium to longer maturity. The average maturity and duration of its portfolio is usually in the range of 2 to 6 years and is based on the fund manager's outlook on the macros and the direction of interest rate.

SBI Equity Hybrid Fund invests around 70% of its assets in equities, with the balance in cash, debt, and others. As of August 31, 2022, SBI Equity Hybrid Fund held a fairly diversified portfolio of 39 stocks spread across market caps. Top large-cap names like ICICI Bank, HDFC Bank, Infosys, Reliance Industries, and Kotak Mahindra Bank figure among its top 10 holdings. Many of these stocks have been part of the fund's top holdings for over two years now. Notably, 5 out of the top 10 holdings of SEHF are Banking & Finance stocks.

Over the last one year, SBI Equity Hybrid Fund gained the most from its holdings in Solar Industries India, SBI, ICICI Bank, and Page Industries. However, its holdings in Divi's Laboratories, Infosys, Shree Cement, ICICI Lombard General Insurance, and HDFC Bank, among others, eroded some of its gains.

SBI Equity Hybrid Fund's portfolio is spread across a range of cyclical, defensive, and sensitive sectors. It has a major allocation to Banking & Finance that collectively account for 22.4% of its assets. Pharma, Auto Ancillaries, Petroleum, Infotech, Engineering, and Retail follow with an allocation in the range of 3% to 6%.

The debt allocation in SBI Equity Hybrid Fund's portfolio is diversified across 49 debt instruments consisting mainly of Sovereign rated G-secs, and moderate to high rated Corporate Debt instruments. The fund usually maintains a high-quality debt portfolio, with an average maturity of around 2-8 years in recent months, which makes it moderately sensitive to interest rate changes.

Suitability

With predominant allocation to equities and significant allocation to debt, SBI Equity Hybrid Fund is well placed to offer the benefit of both worlds and provide long-term capital appreciation along with stability.

SBI Equity Hybrid Fund has delivered promising returns over longer time periods and has turned out to be a rewarding proposition for long-term investors. The superior performance of the fund has been driven by the smart sector and stock selection strategy followed by the fund management team.

During the market crash of 2020, the performance of the fund was satisfactory, wherein it managed to restrict losses reasonably, whereas it managed to maintain gains in the recent bull phase. SBI Equity Hybrid Fund appears well-equipped to face the market volatility going ahead.

SBI Equity Hybrid Fund is suitable for cautious investors having moderate to high-risk appetite and an investment horizon of at least 3 to 5 years.

Warm Regards,
Divya Grover
Research Analyst

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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

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