Promising Performance - HDFC Equity Fund

With its long track record of over 14 years, the HDFC Equity Fund has consistently managed to outperform the category across the market cycles. And since its inception, the fund’s net asset has appreciated by 15.16 times. Such consistency is only possible with a process-driven and disciplined investment approach that is followed by very few AMCs. HDFC, obviously, is one of them. It must be mentioned here that a fund manager’s role is as important as that of an AMC in the timely execution of various investment ideas.

From June 19, 2003, this fund has been managed by Prashant Jain and since then it has managed to be in the top league. Jain’s enduring association with this fund has ensured stability and consistency in investment style and performance. At HDFC AMC, Jain also manages equity funds like Top 200, Prudence and Infrastructure that have managed to beat category returns over the long run with ease.  Further, all these equity funds managed by Jain have had a total corpus of more than Rs 8,000 crore till April 30, 2009 that is more than the total corpus of 11 fund houses when taken together that includes names like DBS Chola, Morgan Stanley and etc. Such performance and also the investor’s confidence in these funds indicate the astuteness of the fund manager. The fund follows a multi-cap approach in selecting stocks. However, since its inception it has predominantly been oriented towards large-cap funds. Such allocation has helped the fund in consistently outperforming its category over the long run, except for 2007 when the mid-cap stocks lead the market rally.

As per the April fact-sheet, the fund’s allocation towards the large-cap stock was more than 60 per cent of its net asset. It was primarily invested in sectors like banking, FMCG and pharmaceuticals that together contributed almost 43.08 per cent of the fund’s net asset. The fund has increased its exposure towards the banking stock over the month of March so much so that the top three stocks were those of banks. The fund’s top ten holdings contributed 41.27 per cent of the portfolio. And with its total holding of 51 stocks, the fund had a slightly concentrated stock and sectoral portfolio. However, the funds risk due to portfolio concentration is mitigated by its defensive sectoral allocation.

Besides, the fund is almost fully invested and has a very low cash and equivalent holding of 3.51 per cent of the net asset, mainly to provide for any redemption. Such lower cash holding, marginally diversified market-cap allocation, and the concentrated portfolio allocation has helped the fund in outperforming the category as well as the major indexes in the recent rally in the markets. The fund, in one and three-year periods, has managed to beat the category returns by 1,273 and 659 basis points. Thus, investors with a moderate risk appetite can take long-term  exposure to this fund through SIP.