HDFC Equity Fund has landed in the top quartile of its category for the fourth consecutive year. The fund has also outperformed its benchmark—the S&P 500—for the seventh continuous year this time. In all, the HDFC Equity Fund now has a first quartile standing in six of its nine full calendar years.
How has this been achieved? The secret of its success is that it has zipped in and out of performing sectors, remaining diversified at the same time. Keeping the portfolio concentrated in around 15-20 securities is also a part of the recipe.
After the Supreme Court halted PSU disinvestment in September 2003, the fund disowned energy stocks. It sold its entire 9 per cent holding in October. It has also dumped metals and metal products; Nalco and Tisco have thus been removed from the portfolio. The fund is now taking exposure to construction, chemicals and adding to its technology positions.
After more than two years of having no exposure to finance stocks, the fund took a 6.1 per cent exposure to State Bank of India in June 2002. By November, it doubled its exposure to this sector, and in December it touched 18 per cent when the fund purchased Punjab National Bank and Bank of Baroda. Finance was soon the fund's top sector and remains so.
Smart sector calls have helped HDFC Equity Fund's performance. A strongly underweight stance in IT (9.3 per cent of portfolio as on March 31, 2003) helped it stay afloat as Infosys results sunk the markets.
Besides being extremely nimble, diversification also comes in handy when its calls go wrong. Therefore, though the fund lost significantly when it dumped HPCL in September 2002, judicious calls in other stocks helped it retain the first quartile standing.
Investors have also been quick to recognise HDFC Equity's mettle. In the span of a year, the fund has become the fourth largest open-end diversified equity scheme. Can the scheme manage to remain as nimble as it is? Well, it's a million-dollar question.
Nonetheless, HDFC Equity has successfully managed the risks of a concentrated portfolio. This fund deserves a place in all portfolios where long-term growth of capital is a key aim.
This article was originally published on January 20, 2004.
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