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Smart Young Thing

In its short existence of about eighteen months, HSBC Equity has managed to carve a place for itself at the top.

HSBC Equity was launched in December 2002 with a small initial corpus of Rs 35.7 crore. However, its breathtaking performance in the past year has resulted in HSBC Equity becoming a Rs 1100-crore fund. A top-down approach, diversified portfolio and astute stock picking have resulted in the fund landing at the second position in 2003. Ands its one-year return of 90 per cent as on July 9, 2004 makes it the top-performing fund in the category.

The fund follows a top-down approach and takes sector calls. Within the sector, it carefully picks stocks with strong fundamentals. Almost half of its returns come from its sectoral calls and the rest can be attributed to prudent stock selection. It has a preference for medium and large companies.

At present, its key sector bets are in technology, auto and energy. In 2003, its hot favourite was the tech sector. The fund manager does not hesitate to invest in sectors even when its peers are not doing so. It increased its holding in Infosys just ahead of its September 2003 results, expecting the stock to do well and benefited. But the fund was cautious in the banking sector, and missed the rally in 2003. Its investments in auto sector stocks like M&M and Tata motors also proved profitable. Both the stocks appreciated by over three times in last one year.

In the bull market last from April 2003 to Jan 2004, the fund generated a return of 182 per cent in the period (the last bull run) outperforming its benchmark, the BSE 200, which rose by 131 per cent in the same period. HSBC Equity has not lived through a major bear market to analyse how it performs. But in the down market since January 2004, it did not fall as much as the benchmark or the average diversified equity fund. In the bear phase this year (05/01/04-17/05/04) the fund has yielded a negative return of 18.52 per cent while the benchmark BSE 200 nose-dived by 28.56 per cent and the category's 22.70 per cent.

While all this adds up to a great investment story, cautious investors generally do not like to make major allocations to such young funds. The fund is clearly a bull market darling but it is yet to be tested in difficult waters. The fact is that out of the myriad things that can go wrong with the markets, this fund's mettle has been tested in only a few.