HDFC Equity Fund was launched in January 1995, under the Zurich India Mutual Fund umbrella of schemes. In June 2003, the scheme was migrated to HDFC Mutual Fund and since then is managed by Prashant Jain. The fund manager for overseas investments is Anand Laddha. The fund is a well diversified equity fund investing across mid and large market capitalisations. The fund is amongst the oldest in its category with a track record of more than 15 years. The average assets under management of the fund have grown steadily to reach Rs 8,353 crore as of December 2010, the highest in the category.
Performance
The fund has delivered good returns across various time frames. Over a 10-year period, the fund has given a compounded annualised return of 31 per cent as on March 11, 2011 as compared to its benchmark’s (S&P CNX 500) 18 per cent return and 23 per cent by peers during the same period. Over a three-year period, the fund returned 15 per cent, outperforming the benchmark and peers which returned 2.5 per cent and five per cent respectively.
Assuming a monthly SIP of Rs 1,000 since the inception of this fund, the total invested amount of Rs 1,96,000 would have grown to Rs 28,51,682 yielding an annualised return of 28.61 per cent. A similar monthly SIP in the S&P CNX 500 would have grown to Rs 7,64,716 and yielded 15.14 per cent annualised returns. The fund’s SIP has outperformed its benchmark across 3, 5, 7 and 10-year time frames.
Investment approach
The fund’s strategy allows freedom to invest regardless of sector, market cap or investment style in growth companies with prospects of above average growth in their industry. The fund’s average exposure to Crisil-defined large cap stocks over the last two years has been around 63 per cent while the balance exposure has been in mid-cap stocks.
When the markets started to decline from their historic high in the beginning of 2008, HDFC Equity fund fell by 35 per cent as compared to a 42 per cent fall in the benchmark from January 2008 till April 2009. In the upturn that followed, HDFC Equity fund gained 45 per cent till date as compared to a rise of 27 per cent by the benchmark. Thus, the fund has displayed both, resilience in a bear phase and ability to deliver superior returns in a bull run.
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Portfolio analysis
High equity exposure vis-à-vis peers: The fund has remained well invested in equities with an average exposure of 97 per cent over the last three years. With a long-term view on strong and quality companies, the fund remained invested well above its peers throughout the bear run of 2008 by maintaining an average equity exposure of 98.4 per cent during this period as compared to 86.4 per cent by the peers.
Thus, the fund benefited from the rally of 2009 and outperformed its peers when the markets bounced back. According to the latest portfolio, the fund has maintained 3.62 per cent as cash and cash equivalent in its current portfolio.
Portfolio diversification: The fund has held an average of 56 stocks in its portfolio over the past two years, thus, representing a well diversified portfolio in terms of number of stocks. The top five stocks account for nearly 26 per cent of the portfolio over the last three years. At the industry level, banking has been the most favoured sector over the last three years with an average exposure of 19 per cent followed by pharma, consumer foods and oil exploration constituting the next largest industry exposures (at 11, six and five per cent respectively) over the last three years.
The fund ranks third on both industry and company concentration parameters indicating moderate concentration risk.
Risk: The fund has been able to generate superior returns by maintaining a low volatility in its returns. This has been driven by the underlying philosophy of the fund that the key to building wealth is not in targeting high returns with high risk each year, rather in avoiding big mistakes in every year.
The fund bears a relatively lower risk owing to its large cap tilt and hence provides more cushion to investors during times of market volatility.
— Crisil Fund Services