HDFC Equity Fund's performance, investments strategies and portfolio diversification make it a viable investment option
LAUNCHED in December 1994, HDFC Equity is one of the oldest schemes and the third-largest diversified equity fund in the country with assets under management (AUM) of over Rs 6,100 crore. The rise in its asset base and popularity of this fund is not just a fluke but an outcome of fund's consistent impressive performance over the years.
The fund has been criticised on more than one occasions for dissatisfying its investors during some of the bullish market phases of the decade, but its dramatic recovery thereafter and outstanding performance thereafter has silenced critics.
PERFORMANCE:
Having been a part of the mutual fund industry for more than a decade, HDFC Equity definitely boasts a long experience having faced both the bullish and the bearish phases in its 16-year-long journey. The fund has not only successfully beaten its benchmark indices and cushioned its fall during the dotcom bubble of year 2000-01, but also made a steadfast recovery in the immediately following years of 2002-03. Its 126% returns in 2003 against its benchmark S&P CNX 500's returns of about 98% in that year were commendable indeed.
However, in 2006-07 — one of the most bullish phases of the decade — HDFC Equity grossly failed to meet the investor expectations. In 2006, the fund returned just about 36%, marginally outperforming its benchmark returns of about 34% while in 2007, the year marked by market momentum, it returned just a bout 54% against S&P CNX 500's 63% gains.
The fund's poor performance in these years can be, however, attributed to very low exposure in the hot sectors of the industry, such as real estate and construction. In fact, even in 2007, HDFC Equity maintained a high exposure in sectors like healthcare, which, being most defensive was one of the poorest performing sectors in that year. The strategy and investment decisions that failed in 2006-07, however, did wonders for the fund in the following years. In 2008, as the equity markets across the globe collapsed like pack of cards, HDFC Equity's net asset value (NAV), too, fell by about 50%.
But this fall was far lower than the 57% decline in the returns of its benchmark index, the S&P CNX 500. The fund, however, recovered these losses in 2009 as it returned a whooping 106% against S&P CNX 500's 89% gains in that year.
Even in the current calendar year, despite the market volatility, the fund has continued its winning streak as it has returned about 7% gains since January against S&P CNX 500's negative 0.3% returns during this period.
PORTFOLIO:
For a fund with size as large as Rs 6,000 crore, HDFC Equity's portfolio is well diversified to incorporate an average of about 60 stocks across sectors. While the fund has a multi-cap approach, it is clearly biased towards large-cap stocks with more than 60% of its equity portfolio invested in the large caps.
For the sectoral allocation, the fund has a reasonable exposure in healthcare and FMCG sectors, to the tune of about 10% and 8%, respectively. In fact, HDFC Equity has been bullish on healthcare since early 2007 when there were hardly any takers for this sector.
The turnaround witnessed in this space in the past one-and-a-half year has in fact made healthcare as one of the most favourite sectors of many fund managers in the industry. However, as far as the highest sectoral exposure is concerned, financial and energy dominate HDFC Equity's portfolio as they do for most other diversified equity schemes of the country today.
As far as its portfolio is concerned, the fund has a fine mix of stocks which have been invested into way back in 2006-07 as well as some others that have been invested into recently.
Some its most profitable long term investments include Bank of Baroda, SBI, GlaxoSmithKline Consumer Healthcare, CMC, Divi's Labs, Dr Reddy's and Sun Pharma among others. Clearly, the fund manager's decision to invest in the pharma sector, way back in 2007, has turned out a boon.
OUR VIEW:
Reckoned as a low risk and high return diversified equity scheme, HDFC Equity has indeed turned out to be an investors' delight so far. While its performance in 2006-07 had raised distrust for this fund among many of its investors, those who continued to stay invested have been fairly rewarded today.
The fund's performance, investments strategies and portfolio diversification so far definitely qualifies it for consideration as a viable investment option.
