This close-ended fund aims to build a portfolio that amply represents a cross-section of growth areas of the economy. The investment style followed here is essentially to buy and hold scrips up to a point where their valuations are reasonable. And the fund follows this up to a point where it seems possessive, as many as 38 scrips that have been held consistently for more than a year. Moreover, for a fund that maintains a count of about 40 - 45 scrips, HDFC Long Term Equity has dappled in only 60 scrips so far in its 18 month existence.
A look at the rather short performance history is discouraging. Till about September 2006, the fund managed to keep up with its peers. However, this didn't last long and the fund's performance slipped after October 2006. The year to date return delivered by the fund is dismal - As on August 17, the fund had delivered an insignificant 0.03 per cent (since January 1) as against 7.38 per cent delivered by the category.
The fund has taken concentrated, contrarian bets in the consumer non-durable and healthcare sector. In fact both these sectors have been rather unpopular with the average diversified equity fund maintaining about 4 per cent in each of these sectors.
Another severe backlash to the fund's returns came from its holdings in the automobile sector. The fund didn't spot the slump soon enough and till February 2007 it maintained as much as 12.77 per cent of its assets here. Of late there has been a gradual move towards basic and engineering companies and a rationalization of holdings in the consumer non durable segment.
Given its style of investment, a true assessment of the fund will be possible only over a longer time period. With a strict buy and hold mandate the fund is unlikely to move out of sectors based on short term factors. Owing to this the fund is likely to under perform the category over shorter time periods.
This article was originally published on September 04, 2007.
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