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Sensex Plus Returns

Its downside protection abilities helps HDFC Index Sensex Plus excel the markets over the long run…

If you want to play it safe by not straying too far from the Sensex, then this one is for you. The additional bonus is the downside protection that eventually helps the fund outperform over the long-run. Over the three year period ended July 31, 2011, the fund delivered a return of 13.88 per cent (Sensex: 8.22%).

In the market downturn of 2008, the fund beat the Sensex by a margin of 5.37 per cent. All through the year, true to the philosophy of the fund house, it did not plunge into cash. Only in the last quarter of that calendar year did it succumb and averaged around 19 per cent in cash. But when the market took a U-turn to begin its upward journey in March 2009, the fund was almost fully invested giving it a head start. Yet it delivered marginally below the Sensex, though was pretty much ahead of the category average with a return of 80.60 per cent (category average: 73.27%).

Barring 2008 and 2009, the fund has never been a top quartile performer but has been able to beat its category average nearly every single year. Ironical, given the fact that the fund has a predominantly passively managed portfolio. The fund’s strategy is to allocate around 80-90 per cent of the portfolio to Sensex stocks in nearly the same proportion as that of the index. The balance 10 to 20 per cent will be actively managed across market caps, enabling the fund manager to pick stocks that have the potential to outperform the Sensex. Given its track record, it’s safe to say that this leeway has been well utilised.

Though the number of stocks in the portfolio has ranged between 32 and 39, ever since inception, 80 per cent of the portfolio on an average has been allocated to the 30 stocks of the Sensex. However, the actual allocation has ranged between 61 per cent and 100 per cent of the portfolio.

Currently the fund has 90 per cent of its portfolio into Sensex stocks with the balance 10 per cent distributed amongst six stocks - the largest by way of market capitalisation being Dr. Reddy’s Laboratories (market cap: Rs 25,987 crore) while the smallest is India Glycols (market cap: Rs 361 crore).

Since the bulk of the portfolio is allocated to Sensex stocks in the almost the same proportion, the allocation to a single stock has been known to touch 16 per cent and move above 10 per cent on many occasions.

Much to its credit, despite a fairly restrictive investment mandate in terms of stock picking, this fund stands out in this category.