Winning streak

FUND PICK/HDFC Equity Fund

HDFC Equity Fund is an open-ended diversified equity fund which was launched in December 1994. Entry into the fund requires a minimum investment of Rs 1,000 and this is subject to a 2 per cent load.

Performance: The fund has found a place in the first quartile of its category for the fourth consecutive year now.

It has also outperformed its benchmark - S&P 500 - for the seventh consecutive year. The cumulative result of this is five-year annualised returns of 41.10 per cent.

Portfolio: The secret of the fund's success is that it has zipped in and out of performing sectors, remaining diversified at the same time. Keeping the portfolio concentrated in around 15-20 securities is also a part of the fund's recipe.

After the Supreme Court halted PSU disinvestment in September 2003, the fund disowned energy stocks. It sold its entire 9 per cent holding in October.

It has also dumped metals and metal products; Nalco and Tisco have thus been removed from the fund's portfolio. The fund is taking exposure to construction and chemicals and adding to its technology positions.

After more than two years of having no exposure to finance stocks, the fund took a 6.1 per cent exposure to State Bank of India in June 2002.

By November, it doubled its exposure to this sector, and in December the exposure touched 18 per cent when the fund purchased Punjab National Bank and Bank of Baroda. Finance was soon the fund's top sector and remains so.

Smart sector calls have helped the fund post better performance. A strongly underweight stance in IT (9.3 per cent of portfolio as on March 31, 2003) helped it stay afloat as Infosys' results sank the markets.

Besides being extremely nimble, diversification also comes in handy when its calls go wrong. Therefore, though the fund lost significantly when it dumped HPCL in September 2002, judicious calls in other stocks helped it retain its first-quartile standing.

Investors have also been quick to recognise the fund's mettle. Within a year, the fund has become the fourth largest open-end diversified equity scheme. A question now arises if the fund can remain as nimble as it has been in the past.

Outlook: HDFC Equity has successfully managed the risks of a concentrated portfolio and has done well across market cycles. The fund deserves a place in all portfolios where long-term growth of capital is a key aim.