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Undisputed Champion

Through bad times and good times, HDFC Prudence has a habit of winning. It has not only beaten its category, but has also done better than most equity funds. Investors can't find a better and safe hybrid fund than this one.

HDFC Prudence is that rare fund which has never disappointed its investors. Its excellent performance across market cycles makes it a good core holding for all sorts of investors. Long-time fund manager Prashant Jain's knack of maintaining a good diversified stock portfolio and a quality bond portfolio has led to top flight returns that have seen it in the top quartile every year since launch.

Sticking to its 60:40 equity-debt allocation by consistent rebalancing is the secret of HDFC Prudence's combination of high performance and low risk. This means that the fund always sells equities when they rally and buys when they dip. Occasionally, as in early 2000, this may lead to short-term under-performance but things always work out in the long run as they did when it ended the year 2000 in the top quartile of its category.

Jain is a fairly active trader in his stocks. He likes to sell as a stock approaches his fair value estimate and adds as it gets further away. In the recent rally, the fund booked profits in Canara Bank and Bharat Forge but re-entered Tata Steel and Container Corporation, and bought Oriental Bank. All three stocks have gained massively recently.

Jain has plenty of smart sector moves in his track record. He was able to take advantage of the post-9/11 tech rally by taking the sector up from 5.6 per cent of his holdings in November 2001 to 15.8 per cent in December 2001. When PSU oil stocks zoomed in early 2002, he hiked his energy exposure from 4.3 per cent in January 2002 to 16.7 per cent by March. Also, in the recent bank rally, the fund's financial services exposure increased from 5.4 per cent in November 2002 to 17.34 per cent by July 2003.

The fund's debt holdings largely consist of high quality bonds. Earlier, it was AAA corporate bonds that boosted the fund's returns and later it was a higher gilt exposure. However, recently it seems to be preparing to tackle the across-the-board fall in bond prices, by loading up 14.6 per cent into below-AAA bonds.

HDFC Prudence has all the right ingredients—an excellent performance history, below average risk and consistent returns. Investors seeking a hybrid fund as a safe haven can't find a better offering than this one.