HDFC Top 200 Fund is an open-ended fund with a mandate of generating capital appreciation from equity and equity-linked investments drawn primarily from companies in the BSE 200 index. With a 14-year track record, it has managed to generate significant returns for investors over the long term. The fund has been ranked Crisil Fund Rank 1, in five out of the last six quarters, including the past two consecutive quarters. This means it has consistently been in the top ten percentile of Crisil’s ranked universe. It is managed by Prashant Jain and Anand Ladha; the latter manages the fund’s foreign securities investments.
Good show
The fund has consistently outperformed its benchmark and peers in the large-cap category over its long track record of 14 years. This holds true for market rallies as well as market downturns. An analysis of the fund’s monthly returns during the market downturn of 2008 shows that the fund was successful in protecting the downside. It outperformed its benchmark as well as peers in eight out of the 12 months. Once the market started rallying post April 2009, the fund continued to outperform its benchmark and peers. From May 2009 till October, the fund has beaten its benchmark and peers in 12 out of 18 months.
Evaluation of the performance of the fund over the past six years exhibits that Rs 1,000 invested in the fund in October 2004 has grown to Rs 5,254 as of October-end. Investment in the benchmark index over a similar period has grown to Rs 3,406, while investment in the peer set has grown to 3,977 on an average.
Investment in the fund through SIP (Systematic Investment Plan) route have also generated good returns. A one-year SIP has generated returns of 42.5 per cent, while a three-year SIP has returned 38.2 per cent, and a five-year SIP has generated returns of 26.3 per cent (annualised) as of the month ended October.
The fund manager has generated superior returns without taking significant risks, as is evident from a comparison of the fund’s annualised volatility which stood at 30 per cent. In comparison, the volatility of the category ranges from 28 per cent to 36 per cent.
Investment strategy
The fund maintains a diversified portfolio of stocks that comprises predominantly of large-cap stocks. The fund managers employ a blend of top-down and bottom-up approach for portfolio construction. The fund has over the years adhered to its mandate of investing predominantly into stocks comprising of the BSE 200 index, with an average exposure of 92.4 per cent to the index over the past three years. This strategy of primarily restricting the equity portfolio to the BSE 200 index stocks is intended to reduce risk while maintaining steady growth.
The fund manager takes conviction bets both in terms of sectors and stocks, and follows a buy-and-hold strategy. The portfolio churn of the fund is significantly less than its peer average over the past three years.
The fund manager usually does not take high cash exposure, except in conditions of extreme market uncertainty. The fund, for instance, took a higher than average cash call during April-May 2009, the time when the market was apprehensive about the outcome of the national elections. Even then, the cash allocation was significantly less than its peers.
Portfolio analysis
The portfolio is diversified with the average number of stocks varying between 55 and 65. Over the past three years, the top 10 holdings have constituted 41 per cent of the portfolio, while the top 5 sectors have constituted 26 per cent. Over the past three years, the fund has invested significantly in the banking, IT and pharmaceutical sectors. These investments have yielded good results, as these sectors have been the top contributors to the performance of the fund over the same period.
— Crisil Fund Services
