Strong And Steady - HDFC Prudence Fund

[INSERT_1]

What will you call a fund that has the longest track record and has been a consistent performer? The answer is: a prudent performer. With its inception in February 1994, this fund is one of the oldest funds in the balanced fund category. More importantly, the fund in its 16-year-long tenure has managed to perform on a consistent basis and has been in top gear for almost the entire period of its existence. It has rewarded its investors well and in response investors have always shown an increasing interest in this fund. This is quite evident from the fact that this fund, with its AUM of close to Rs 3,900 crore, is the highest in the category, with it being voted three times the second best.

The investors that have been with this fund ever since it has been flagged off have earned remarkable returns of over 21 per cent CAGR, which is far better than a major chunk of diversified funds with such long-track records. This is despite the fact that the diversified fund category has higher liberty in managing its asset allocation that can be tilted largely towards equity, thereby taking higher risk. Such a statistical detail therefore proves that the fund in its long tenure has taken lower risks to generate such good returns. In fact, this fund has the fourth best Sharpe ratio (risk adjusted return) of 0.54 in the balanced fund category. Even its expense ratio of 1.87 per cent is on the lower side in comparison to most of the diversified funds.

Coming back to its performance, it’s been the chart-topper for most of these years. The fund has stood at a number one position over a five, seven and ten years’ period, which is quite an impressive feat. In one, two and three year periods it stood at the number two position. However, CY07 and CY08 turned out to be exceptions when it posted a middle-of-the-road performance. It did, however, make a strong comeback in CY09 when it stood at the first position by beating the category returns with 2,778 basis points.

In terms of its portfolio, being a balanced fund, the fund’s equity exposure is allowed in the range of 40-75 per cent of the net assets. And looking at the past performance and asset allocation, it seems that the fund manager has taken impressive and strategic calls on the portfolio that allowed the fund to outperform even the diversified funds despite the higher debt allocation. In April, the 68 stocks’ equity portfolio seemed well-diversified with the contribution of top ten holdings not crossing 25 per cent of the total assets. However, as been the case earlier, the fund is taking part in the current rally and fuelling its performance through mid-cap allocation, doubled with accurate sectoral and stock selection.
Prashant Jain, who has been managing this fund since 2003, has brought in consistency in its performance and has taken tactical portfolio calls that have worked in its favour. Jain has had a long association with the AMC and also man-ages four other funds that have managed to beat their categories with ease. Thus, considering the fund’s nature, performance and allocation style, investors with moderate risk can take exposure to it on a comfortable level.