If you thought only dynamic bond funds adjusted their portfolios to rate cycles, a look at balanced fund portfolios may throw up a surprise. Traditionally, balanced funds do not juggle their debt components too much, preferring to simply hold top-rated corporate debt.
That changed after 2014, when several balanced funds began to take a call on interest rates to gain from bond price rallies. The most effective way to play duration and make money off falling rates is to invest in government securities. The average exposure to gilts for balanced funds began inching higher from 2013 onwards. As a result, balanced funds that took such duration calls gained on both equity and debt fronts. In the rally that kicked off in 2014, the equity portion of the portfolio received a boost from price rallies on the debt portion of the portfolio as well.
