HDFC Prudence recently celebrated its 10th birthday to become one of the oldest hybrid funds around. The long-time fund manager Prashant Jain has done an excellent job in moderating this fund's risk and delivering compelling returns over time. Top quartile return in six of the nine full calendar years further strengthens its profile as an ace hybrid fund. Much of its success is owed to consistent portfolio re-balancing, good stock selection and quality bond holdings.
Largely sticking to 60:40 equity:debt allocation has ensured that it doesn't get overboard on either equities or bonds. Even thorough 2003's equity rally, the fund hardly breached this limit. Even then, it topped the category that year with gains of 92 per cent. Thus, unlike most of its peers that gained on higher equity allocation, HDFC Prudence rode the rally on smart stock selection and sector move. A strong growth in its top holdings like SBI, Grasim, BHEL and Concor did the trick. Also its mid-cap picks like Bharat Electronics, Shree Cements and Swaraj Mazda have been a big plus. Though the fund has mostly invested in large-caps, even the mid-cap allocation is confined to less volatile ones, thus reducing the overall risk element in the portfolio.
The fund's equity portfolio has mostly been spread over 20 to 30 stocks, but more encouraging has been the manager's sector moves. Through 2003, he kept a relatively high exposure in financial services vis-à-vis peers and was rewarded handsomely. In October 2003, he exited energy holdings when the Supreme Court directed the government to seek Cabinet's nod before disinvesting oil PSUs. Recently, Prudence has been bullish on tech, which has worked well as its picks Infosys and Satyam have come up with good quarterly results.
On the bond side, the fund typically sticks with gilts and high-quality corporate issues, but has taken a few risks on the margin (AA and above).
This fund's consistent and strong long-term performance is unbeatable. Having gone through all phases of market cycle with great success, one can't find a better hybrid offering than HDFC Prudence. It's a comfortable home for all sorts of investors.