Balanced Funds, usually, fail to incite interest on the dalal street. The recent performance of HDFC Prudence, however, shows that you need not be reckless to rake in the moolah
IT IS a hybrid (balanced) fund. Yet, its returns, particularly in the recent past, have surpassed even those of the broader market indices – the Sensex and the Nifty. Launched in Jan '94, HDFC Prudence is one of the oldest equity-oriented hybrid funds of the country today. Its humungous asset size of over Rs 3,200 crore also makes it the largest and the most popular scheme in the category of balanced funds.
PERFORMANCE:
It is probably unfair to compare the performance of a hybrid fund with a core equity index. However, despite its blend of both debt and equity, HDFC Prudence has displayed a great ability to beat the equity market returns handsomely in its over a decade long performance history. Thus, despite being benchmarked to Crisil Balanced index, the fund's performance, so far, has inevitably raised its benchmark to an equity index like the Sensex or the Nifty.
PERFORMANCE:
It is probably unfair to compare the performance of a hybrid fund with a core equity index. However, despite its blend of both debt and equity, HDFC Prudence has displayed a great ability to beat the equity market returns handsomely in its over a decade long performance history. Thus, despite being benchmarked to Crisil Balanced index, the fund's performance, so far, has inevitably raised its benchmark to an equity index like the Sensex or the Nifty.
HDFC Prudence has been successful in beating these indices uniformly year-onyear, since its launch, except in the most bullish years of 2006 & 2007. This indeed is surprising despite the fund's equity orientation towards mid- and small-cap stocks that had a ball in '06 & '07. The returns of about 33% and 43% in '06 and '07, respectively, may have disappointed any equity investor, for Sensex had returned about 47% in both the years and Nifty had given 40% and 55% returns, respectively.
But what really surprises is the fund's strong comeback in the current calendar year. Since January this year, the fund has delivered 82% returns, which is as good as the average of the category of diversified equity schemes. The Sensex and the Nifty have returned about 77% and 73%, respectively, during the period.
However, as far as the downturn of 2008 is concerned, despite outperforming the Sensex and the Nifty – given the balanced nature of the fund, it failed to beat the average returns of its balanced peers. The fund fell by about 42% in '08 against the average decline of about 41% by the category of balanced funds.
PORTFOLIO:
With about 75% of its assets invested in equity, the fund is extremely well-diversified and on average holds 55-60 stocks in the portfolio. And within the equity portfolio, the fund has a clear bias towards mid- and small-cap stocks that account for more than half of its equity portfolio. While the fund has been holding many of its stocks for over a couple of years now, churning the portfolio occasionally, some of its recent acquisitions have turned out to be multi-baggers.
Its recent picks like Lupin, Punj Lloyd, Simplex Infrastructure, CRISIL, Maharashtra Seamless and Biocon, during March – May '09 have more than doubled till date. As far as its long-term investments are concerned, it is benefiting mainly from the returns on some of the large-cap blue-chip companies it had picked early. These include stocks like SBI, Bank of Baroda, TCS, P&G, Glaxo Smithkline Consumer, Crompton Greaves and Sun Pharma among others. Initial investments in each of these stocks date back to early 2007 and even beyond.
At the same time, some of its long term mid- and small-cap acquisitions like ISMT, Indo Rama Synthetics, Uniphos Enterprises, Himatsingka Seide and Ahmednagar Forgings, among others, have fallen off grace since the time they were accumulated about two-and-half-years ago.
In terms of sectoral composition, financial services and pharmaceuticals have been dominating the fund's portfolio since 2008. In fact pharmaceutical sector, especially in the mid-cap space, has attracted attention of many fund mangers in the last few months. As far as the fund's debt compositions are concerned, the fund mostly invests in high rate papers especially those with AA+ or AAA ratings and in sovereign papers.
OUR VIEW:
HDFC Prudence's high midcap exposure definitely raises its risk quotient. However, the equity risk is well compensated by the exposure to high quality debt instruments. While the fund's performance in the current calendar year is breath-taking, it had a rickety performance a couple of years ago. Those seeking an investment opportunity in equities with 3-5 years' horizon can consider this fund.
