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HDFC Equity Fund
Its easy to see why HDFC Equity Fund remains a firm favourite with advisors and investors alike. Even under the more rigourous consistency measures that Wealth Forum employs in its Fund Focus analysis, the fund scores handsomely - beating its benchmark consistently year-on-year, quarter-on-quarter and month-on-month.
Fund Category : Equity - Diversified
Fund Benchmark : S&P CNX 500
Fund Strategy
The aim will be to build a portfolio, which represents a cross-section of the strong growth companies in the prevailing market. In order to reduce risk , the Scheme will remain effectively diversified across key economic variables. The investment strategy for the scheme has been consistent and broadly focused on the following points:
1. Maintaining a focused portfolio: The fund targets a reasonable exposure to high conviction ideas and the benchmark is less relevant while constructing the portfolio. The fund manager has a positive approach to investing and targets alpha returns. The fund manager believes in maintaining a reasonable exposure to high conviction ideas ( 4-7% for large caps ; 1-3% each for mid caps) to achieve this objective.
2. Investing predominantly in growing companies: The fund targets companies that are expected to grow at above average rates in the foreseeable future, have superior financial strengths and enjoy distinct competitive advantage.
3. Investing in strong / quality companies: The advantage of investing in stronger companies is that they reduce the market as well as the industry risk. There is no market capitalisation bias while selecting well managed companies. There is a preference for investing in the top 3 companies in the respective sector/ segment selected.
4. Remaining effectively diversified: The quality of diversification is more important than the quantity.The fund believes that investments in more number of stocks with high correlation is riskier than investments in lesser number of stocks with low correlation.Despite maintaining a focused portfolio the fund is reasonably diversified across sectors. The fund manger takes care to target low correlation across sectors (diversify across key economic risks / variables)
5. Exposure to mid caps is limited to nearly 1/3rd of the portfolio to control risk.
Performance Commentary
The investment philosophy of the fund is not to target high returns with high risk each year but rather in avoiding big mistakes every year. This philosophy has helped the fund consistently outperform its benchmark over the years as can be seen in the table above. There has been only 1 year of under performance when the markets were euphoric over the last 5 years. The fund's performance has benefited with the investment strategy of sticking to high conviction ideas and maintaining a focused portfolio of stocks across various market capitalisations . The fund has not changed its portfolio based on change in market conditions and this has helped it to outperform consistently across market cycles.
Sectoral & Thematic Preferences
The scheme's top sectoral or thematic preferences are banking, software , consumer non durables,pharamaceuticals, petroleum products and industrial capital goods amongst others. The banking sector has the highest weightage as we believe the sector is a good proxy to the economy and with a growing GDP it is a sector which will reflect this growth. The exposure to consumer non durables represents the consumption theme in the economy. With a rapidly growing economy the need for consumer non durables will increase. The fund's portfolio reflects its investment strategy in investing in large cap companies with above average growth rates and being amongst the top 3 companies in their respective sectors. The investment across sectors also reflects the diversification in the portfolio where there is low correlation amongst the sectors invested in.
Fund Manager's outlook on markets
The earnings growth outlook is decent despite some stress on the macro economic indicators. The Sensex at current levels trades at 15X P/E on March 2012 estimates. This is slightly lower than the long term averages. The returns (equity markets) over the medium term should be in line with the earnings growth rate . The returns of large caps/ mid caps should not display large divergence. The spike in oil prices is a key risk to emerging market economies like ours. The reduction in the fiscal defecit situation needs to be monitored closely. The risk reward is favourable over the medium to long term. Investors with a tolerance for volatility and a long term perspective ,should invest in equities in a phased manner over 3-6 months.
Risk Factors: All mutual funds and securities investments are subject to market risks and there can be no assurance that the Schemes' objectives will be achieved and the NAV of the Schemes may go up or down depending upon the factors and forces affecting the securities market. Past performance of the Sponsors and their affiliates / AMC / Mutual Fund and its Scheme(s) do not indicate the future performance of the Scheme of the Mutual Fund. Investors in the Schemes are not being offered any guaranteed / assured returns. HDFC Equity Fund, an open-ended equity scheme(s), is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme, its future prospects and returns. Please read the Scheme Information Document and Statement of Additional Information before investing. Investment Objective: To achieve capital appreciation.
Statutory Details: HDFC Mutual Fund has been set up as a trust sponsored by Housing Development Finance Corporation Limited and Standard Life Investments Limited (liability restricted to their contribution of r 1 lakh each to the corpus) with HDFC Trustee Company Limited as the Trustee (Trustee under the Indian Trusts Act, 1882) and with HDFC Asset Management Company Limited as the Investment Manager.
Disclaimer: The information provided above is not a complete disclosure of every material fact regarding HDFC Equity Fund. The information / data herein alone is not sufficient and shouldn't be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on author's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate professional advice and shall be fully responsible for the decisions taken.
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