Date:26/04/2009 URL: http://www.thehindubusinessline.com/bline/iw/2009/04/26/stories/2009042650531000.htm

Back HDFC Equity Fund: Invest

K. Venkatasubramanian

Investors can buy units of HDFC Equity Fund, considering its long-term track record in delivering steady returns and its ability to consistently contain downsides. The fund has consistently bettered the performance of its benchmark — the S&P CNX500, over one-, three- and five-year periods.

HDFC Equity’s five-year return on a compounded annual basis is 17.2 per cent, which places it among the top ten percentile of diversified equity funds. The fund takes a multi-cap approach to investing in stocks and, though heavy on large-cap stocks, invests substantially in mid- and small-cap stocks as well.

The fund may be suitable for investors wanting to build a long-term portfolio and looking for steady rather than spectacular returns.

Performance and Strategy: HDFC Equity has a track record of over 14 years. The fund has consistently beaten its benchmark over the last five years. Its strength is its ability to contain downsides during periods of market volatility.

During periods of market correction in 2004, 2006 and early 2005, when the market fell 15-30 per cent, the fund contained losses better than its benchmark. Even in the protracted correction of 2008, it outperformed the S&P CNX 500.

But during market upswings, the record is mixed. While in the 2007 market rally, HDFC Equity underperformed its benchmark by a huge margin, in the recent March-April 2009 rally, notched up a five percentage-point outperformance.

Investments may thus be considered in small lump-sums during periods of significant market decline.

The fund adopts a multi-cap approach to stock selection. While it still prefers large-cap stocks (greater than Rs 5,000 crore market capitalisation), with over 60 per cent of the portfolio invested in such stocks, over 30 per cent of the stocks in the portfolio are in the mid-cap category.

This has been maintained over the last few years, which may explain the fund’s underperformance in 2007, when mid-caps stocks ruled the roost.

A sharper large-cap focus may be a fair call, given that such stocks may have better earnings visibility. Together with a significant mid-cap exposure, where stocks are available at attractive valuations, albeit with some business concerns, the fund may able to gain from broader market rallies.

Portfolio: The fund’s March 2009 portfolio reveals that it has high exposures to defensive sectors. Pharma and consumer non-durables, in addition to banks, are among the top few sectors held by the fund.

Exposure to sectors such as capital goods and media, which were among the top performers during the bull-run in 2007, have been trimmed.

HDFC Equity remains mostly fully invested across market cycles and does not sit on significant cash positions to take cover from market volatility. The fund consistently had cash positions of 1-7 per cent of the portfolio. The number of stocks over the past year increased from 42 to 49 in March 2009.

Fund facts: The NAV per unit of the growth option is Rs 122.9. Mr Prashant Jain manages the fund.