VR Logo

Worth the aggression

After a dismal performance in '07 and '08, HDFC Prudence makes a come back with impressive return

Last year, the fund silenced all critics. This fund has beaten the category average every single year since inception, right till 2006. It turned out to be very average in 2007 and 2008. Questions cropped up if it had finally run out of steam. It obviously has not.

Fund manager Jain has been aggressive with the equity allocation but has ensured that investors were well rewarded. An annualised return of around 25 per cent over the past 10 years is nothing short of impressive. None of its peers have been able to match such a performance. To put it in perspective, just nine open-ended equity funds (out of 72) which have been around for at least 10 years have been able to deliver such a performance.

Jain sticks to his convictions and does not get carried away by momentum plays. When other fund managers were betting on Real Estate and Energy, he was conspicuous in his lack of enthusiasm. In 2007, exposure to Autos stood at around 8 per cent while allocation to Energy was lowered to around 3 per cent by December. BSE Auto delivered 3 per cent while BSE Oil & Gas and BSE Power delivered 115.25 per cent and 122 per cent, respectively. In 2008, he not only held on to his high equity allocation (the fund house rarely goes heavy on cash) but even to his exposure of lower cap stocks.

Jain has no problem moving against the herd, as reflected in his sector selection but even in the stock picks. He has not invested in Reliance Industries since April 2009 (earlier too investments were limited to brief periods) though all its peers hold that stock. A consistent feature in his portfolio is Savita Oil Technologies (since 2005). Currently, there are 10 stocks in which less than five other funds are invested in. “We invest in good quality businesses, remain diversified and keep away from richly valued investments to the extent feasible,” explains Jain.

Though the fund has always stayed well within its equity limit (75%), ever since mid-2006, the allocation to equity has always been above 70 per cent. The fund manager got punished for this in 2008 but stood vindicated in 2009. Though the fund follows an all-cap strategy, the portfolio is tilted towards mid and small caps. However, the portfolio is very diversified, currently at 72 stocks. On the debt side, the fund largely invests in debentures of the financial sector with small exposure to GOI Securities and Structured Obligations (SO).