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HDFC Equity proves that high quality hyperactive management works. The fund moves in and out of performing sectors, and selects stocks within sectors that bring returns. Above all, a well-diversified portfolio balances out the risks of its rapid sectoral switches.
HDFC Equity Fund landed in the top quartile of its category for the fourth consecutive year in 2003. It has also outperformed its benchmark for the seventh continuous year. HDFC Equity Fund has a first quartile standing in six of the nine calendar years. It has not only performed well in bull markets, it has also been able to hold its own in bear markets. In the bear phase of 2004, it has outperformed the benchmark by almost a third.
After the Supreme Court halted PSU disinvestment in September 2003, the fund sold its entire energy holding of 9 per cent in October. It built a fresh position again in March 2004 when PSU stocks started rallying. But this fresh exposure to energy sector may put some strain on returns in view of the uncertainty in the global oil market and the government's decision to hold disinvestment of profit-making PSUs.
The fund manager does not hesitate to take big positions in a sector if he is convinced. After more than two years of having no exposure to financial services, 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 increased it to 18 per cent when the fund purchased Punjab National Bank and Bank of Baroda. Finance was soon one of its top sectors and remains so with a weight of 14%.
A strongly underweight stance in IT (9.3 per cent of portfolio as on March 31, 2003) helped it stay afloat as Infosys results sank the markets. In 2004, the fund has increased its average holding in the tech sector to 25% as compared to 14% in 2003. The move could prove to be good for the fund, as tech stocks seem to be performing better compared to other funds in the present market.
Investors have also been quick to recognise HDFC Equity's mettle. In the span of a year, the fund has become one of the largest open-end diversified equity schemes. This fund deserves a place in all portfolios where long-term growth of capital is the key aim.
This article was originally published on July 07, 2004.
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