Sundaram Balanced Advantage Fund’s asset allocation model uses 12 mth trailing PE and adjusted earnings to determine asset allocation. The model currently suggests net equity allocation in the range of 45-60%.Bharath has 57% as net equity allocation.
The model is currently near the top end of valuation for the current band – if markets get more expensive, expect the fund to cut back net equity below 45%.
Bharath says there is a sizeable valuation gap between large caps and mid/small caps, with large caps being more reasonable. The fund currently has 90% of net equity allocated to large caps, 10% midcaps and no small cap exposure.
Fund performance has been negatively impacted over the last 1 yr relative to peers due to its pronounced large cap tilt. Now that large caps have started outperforming their smaller counterparts, performance vs peers has started improving – and Bharath expects this to continue.
Bharath shares incisive insights on how to value digital platform companies – some of which he now finds attractive. He looks at size of addressable market, competitive dynamics, stickiness of the proposition, ability to monetize and adjacencies to determine which companies in which businesses to invest into.
We are now seeing a pause in earnings upgrades, which makes it more difficult to find pockets of value. In this context, he prefers investing in businesses where the 3 year view remains robust even if near term catalysts may not be very strong. Sectors that he likes in this context include auto ancillaries, renewable energy, data centres and premiumization driven consumer discretionary.