Despite hitting the occasional road block, it's still one of the sturdiest shops around. After putting on an impressive show in 2005, it delivered a pretty muted performance in 2006 and 2007. But it also brought to the fore the inherent strength of the fund manager, who sticks by his convictions, irrespective of whoever else is playing the momentum game. “HDFC Equity Fund focuses on investing in quality companies that are reasonably valued and have a growth bias,” says Jain. So even if it means being temporarily punished, he will stick to good quality businesses, remain diversified and be wary of richly valued investments.
In 2007, his high exposure to Financials did not impact as much as Metals or Construction where the fund's exposure was low. Neither did he go overboard on Energy. “The portfolio moves were, in my opinion, consistent with our investment approach,” says fund manager Jain. “The criteria that go into selecting stocks/sectors are quality, our understanding, growth prospects and valuation of businesses.”
But if investors fretted and critics scorned, Jain turned the tables on them eventually. Known to always provide decent downside protection capabilities in the past, it was the same in 2008. Though its fall of 50 per cent was only marginally lower than that of the category average (54%), Jain accomplished this without plunging into large caps or resorting to aggressive cash calls. “The focus on value and not on direction of price movement resulted in the fund being fully invested in the down markets of 2008-'09,” explains Jain. Being fully invested certainly helped when the market picked up in March 2009. Last year, the return of 106 per cent put it way ahead of the category average of multi-cap funds and its benchmark (S&P CNX 500) by 23 per cent and 17 per cent, respectively. “Over the last few years, the fund has preferred bank stocks over cyclicals like Metals as ROE/Growth are better on one hand and valuations cheaper on the other for the former. This hurt performance in 2008 as banks under-performed due to global banks being in stress and the same has helped in 2009 as banks have done well,” says Jain.
The large corpus has led to it being more diversified. With less than 20 stocks in the portfolio till 2003, the fund manager has increased it to around 60 stocks at present. The top 10 holdings have averaged at around 40 per cent over the past one year.