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Mutual Fund Review: HSBC Equity

HSBC Equity has fallen short of expectations when its peers are rewarding their investors with much higher returns

THE largest scheme from the HSBC basket, HSBC Equity Fund manages an average asset base of about Rs 1,377 crore. Launched in December 2002, the scheme is not only the oldest but also one of the most popular schemes from HSBC. Having run high on the popularity charts of the overall mutual fund (MF) industry during the few initial years of its launch, HSBC Equity has, however, failed to keep pace with the markets for quite some time now.

PERFORMANCE:

HSBC Equity started its innings in 2003 on a high not. In its first year, it beat its benchmark index the BSE 200 by extremely generous margins as it net asset value (NAV) jumped by 160% much higher than 95% rise in BSE 200 and a 72% return each by the Sensex and the Nifty that year. It maintained its winning streak in the following two years to emerge as one of the top performing funds of its time.

But having said that, the fund’s performance slipped in the most happening years of the bullrun. In 2006, it returned just about 37% against 40% returns each by the BSE 200 and the Nifty and 47% returns by the Sensex. In 2007, while it did manage to outsmart the Sensex and the Nifty, it marginally fell short of BSE 200’s over 60% returns by returning about 59% in that year. Though aligned to the indices, HSBC Equity returns fell short of the investor expectations since most popular diversified equity funds has rewarded their investors with much higher returns.

If one were to assume that it was probably the fund’s conservative investment strategy and large cap approach that restricted its returns in 2007, then the same strategy helped the fund during the financial crisis of 2008. The fund’s returns fell by about 48% and BSE 200’s fall by more than 56%. The Sensex and the Nifty gave a negative of about 52% each in that year.

But having impressed in the downturn, the fund once again failed to meet the expectations when the markets recovered last year. HSBC Equity’s 59% returns in 2009 were dwarfed by the spectacular performance by most major indices and diversified equity schemes in 2009, with its benchmark, BSE 200 in particular returning about 89% last year.

PORTFOLIO:

Being a large-cap fund, HSBC Equity has most of the BSE Group ‘A’ stocks in the portfolio incorporating an average of about 40 scrips at any given point in time. Most of these blue-chip stocks, however, date back to 2005-2006, which the fund has been holding since them. Ideally portraying the benefits of long-term holdings, stocks like Bhel, Bharti Airtel, HDFC Bank, HDFC, Infosys, L&T and Reliance Industries have more than doubled in valuation since they were acquired more than three years back.

It is also interesting to see the fund make some good picks during the meltdown at extremely reasonable valuations, including BPCL, Cipla, Hero Honda, Indian Oil, Jaiprakash Associates and State Bank of India among others. Some of the fund’s recent picks include Bombay Dyeing, Container Corp and Grasim Industries.

As far as the sectoral preferences are concerned, just like most other equity funds of the industry today, it is energy and finance that rule HSBC Equity portfolio. These two sectors together account for about 45% of the fund’s holdings. Of late, the fund has been gradually increasing its exposure in technology with Infosys alone commanding a 6% share in the portfolio.

OUR VIEW:

HSBC Equity is a largecap fund, which are considered to be the least riskiest of all diversified equity funds. The fund’s low risk quotient is also evident from its low beta of 0.81. Beta is a measure of volatility of the portfolio vis-à-vis the market. Thus a beta less than 1 indicates that the portfolio will be less volatile than the markets. This makes this fund an ideal investment for the risk-averse investors. It is, however, the fund’s performance, which though commendable in the downturn, has disappointed in rising markets. Given the fund’s current pace, investors can expect just about average returns from this fund.

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