Perception Versus Reality: HDFC Equity Mutual Fund
DSIJ IntelligenceCategories: Mutual Fund
Reality may not impact you but your perception about the reality will definitely affect you. Something similar is happening in case of investors, who invested in the funds managed by India’s largest Asset Management Company (AMC) by Asset under Management (AUM), HDFC AMC. Among the funds managed by HDFC AMC has performed sub-par in the last one year and also in the three-year period.
Not a single equity-fund actively managed by them is in the top quartile in terms of performance in the last one year. In fact, HDFC small-cap fund is the worst performing fund in the last one year in this category. This is also the only equity fund from the AMC that has generated negative returns in last one year.
Some of the loyalist of this fund house will argue that one year is a too short period to pass any judgment. Hence, we extended our study to three-year period. Even in three-year duration, the picture does not change much. Again, not a single fund is in the top quartile; however, performance of the funds looks better than one year. But from an investor investing experience, it does not matter much.
One Year Performance Funds Classification 1-Year (%)* Rank Overall Rank Category Total Fund HDFC Index Fund-Sensex(G) Index Funds 17.77 36 1 32 HDFC Index Fund-NIFTY 50 Plan(G) Index Funds 16.1 60 7 32 HDFC Capital Builder Value Fund(G) Value / Contra 2.89 277 13 17 HDFC Long Term Adv Fund(G) Tax Saving (ELSS) 12.48 130 15 42 HDFC Mid-Cap Opportunities Fund(G) Equity : Mid Cap 4 263 15 24 HDFC Growth Opp Fund-Reg(G) Large & Mid Cap 9.23 180 16 26 HDFC Infrastructure Fund(G) Sectoral - Infrastructure 0.18 296 18 19 HDFC Small Cap Fund-Reg(G) Small Cap -5.58 305 21 21 HDFC Top 100 Fund(G) Large Cap 9.88 167 29 35 HDFC TaxSaver(G) Tax Saving (ELSS) 6.84 228 32 42 HDFC Equity Fund(G) Multi Cap 8.64 191 34 52 HDFC Focused 30 Fund(G) Multi Cap 6.87 224 39 52
*All the returns are trailing return as on January 15, 2019
Three-year performance
Funds Classification 3-year (%) Rank Overall Rank Category Total Fund HDFC Index Fund-Sensex(G) Index Funds 16.30 21 4 32 HDFC Index Fund-NIFTY 50 Plan(G) Index Funds 14.73 44 10 32 HDFC Capital Builder Value Fund(G) Value / Contra 9.44 172 9 17 HDFC Long Term Adv Fund(G) Tax Saving (ELSS) 12.60 89 14 42 HDFC Mid-Cap Opportunities Fund(G) Mid Cap 7.46 219 15 24 HDFC Growth Opp Fund-Reg(G) Large & Mid Cap 9.32 175 16 26 HDFC Infrastructure Fund(G) Sectoral - Infrastructure -1.46 273 18 19 HDFC Small Cap Fund-Reg(G) Small Cap 10.20 156 7 21 HDFC Top 100 Fund(G) Large Cap 11.46 117 23 35 HDFC TaxSaver(G) Tax Saving (ELSS) 7.62 217 34 42 HDFC Equity Fund(G) Multi Cap 11.25 124 27 52 HDFC Focused 30 Fund(G) Multi Cap 6.24 238 46 52
Five-year performance
Funds Classification 5-year Return (%) Rank Overall Rank Category Total Fund in Category HDFC Index Fund-Sensex(G) Index Funds 9.94 155 18 32 HDFC Index Fund-NIFTY 50 Plan(G) Index Funds 9.3 171 19 32 HDFC Capital Builder Value Fund(G) Value / Contra 8.07 208 11 17 HDFC Long Term Adv Fund(G) Tax Saving (ELSS) 10.17 153 28 42 HDFC Mid-Cap Opportunities Fund(G) Mid Cap 8.46 190 14 24 HDFC Growth Opp Fund-Reg(G) Large & Mid Cap 6.24 237 22 26 HDFC Infrastructure Fund(G) Sectoral - Infrastructure -0.69 273 18 19 HDFC Small Cap Fund-Reg(G) Small Cap 9.15 176 8 21 HDFC Top 100 Fund(G) Large Cap 8.09 207 31 35 HDFC TaxSaver(G) Tax Saving (ELSS) 5.74 248 37 42 HDFC Equity Fund(G) Multi Cap 7.86 213 43 52 HDFC Focused 30 Fund(G) Multi Cap 6.26 236 46 52
Despite such lacklustre performance, the AUM of the fund house is rising better than the industry average. It has increased from Rs 2.96 lakh crore at the end of September 2018 to Rs 3.66 lakh crore in September 2019. They now command 14.9 per cent of the total domestic AUM against 13.3 per cent at the end of September 2018. In terms of actively managed equity funds, the fund house commands 15.8 per cent of market share.
This is what a perception does. HDFC AMC with star fund managers was one of the best performers in few years’ back time, which has led to the continued faith of investors in the funds managed by them. Nevertheless, the reality throws a different picture. Forget the top quartile, fund by this AMC are struggling to find a place in second quartile also. One of the reasons for such tepid performance may be due to higher AUM of the funds. For example, HDFC small-cap fund managed by Chirag Setalvad with AUM of Rs 9,232 crore at the end of December 2019, has the highest AUM in small-cap category. Similarly, HDFC mid-cap opportunities fund has AUM of Rs 22,796 crore and also the highest AUM in its category.
Some of the research shows that large fund size has some disadvantage when it comes to creating alpha for their investors. One of the main reasons why despite such performance, the fund house is able to increase its market share is because of its marketing prowess, which help fund company in terms of its reach and clout among fund distributors. At the end of September 2019, IFA’s account for 41.1 per cent of the equity-oriented AUM is up from 40.7 per cent of last year.
Does this mean that investors should exit from these bad performing funds? If return is the sole criteria for your investment, you should definitely evaluate these funds. However, if there are other reasons for your investment, you can base your decision on those criterions.