A Class of its Own | Value Research HDFC Prudence manages half of its category’s assets with a notable & fairly aggressive record…
Fund Focus

A Class of its Own

HDFC Prudence manages half of its category’s assets with a notable & fairly aggressive record…

This fund truly outshines the pack and is known for its ability to trounce the competition. Over the past 10 years, it has emerged as the best performer with an annualised return of 26 per cent (category average: 18%) and has grabbed the first and second spot six times in annual returns.

Does it take risks to deliver such an outstanding performance? Most certainly. For one, Jain boldly sticks to his equity allocation irrespective of the state of the market. Since June 2006, the equity allocation has averaged around 74 per cent and touched a minimum of 71 per cent. Even in 2008, the fund's equity exposure ranged from 72 to 76 per cent (category average: 65%). Surprisingly, the fund did not get thrashed and it delivered an average performance. In 2009, when the market turned, it gave Jain that extra edge causing the fund to be the best performer that year.

What adds to the aggression is the multi-cap approach. Although half of its portfolio is currently allocated to large caps, the fund doesn't refrain from lowering it to sub-30 per cent level, as it did in 2009 (April-September). However, it is not that Jain deliberately looks for certain market cap stocks. It is just the outcome of the bottom-up approach the fund applies in its stock selection. The fund focuses on sound quality companies that enjoy leadership or near leadership and have superior growth prospects available at a reasonable price.

There is no need to assume that Jain is taking undue risks because he does maintain an effectively diversified portfolio. The number of stocks has touched a high of 84 (June 2011), also due to the huge asset base. On the debt side, debentures and GoI securities have largely been the major components of the portfolio, the latter being very sensitive to interest rate changes.

The aggressive approach could hit investors if the fund manager's bets fail to deliver the desired results. And in the past, his stance on exposure to certain sectors or lack of it has hindered returns. But his convictions have played out well over the long term and investors are not whining.

A huge asset base helped the fund bring down its expenses making it one of the cheapest in its category.






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