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Focussed Investing

This fund has successfully managed the risks of a concentrated portfolio and with average volatility, it merits a place in all long-term portfolios

After spending years as a large-cap fund, HDFC Equity has slowly started investing in mid-caps in a big way. Its ability to change with the times makes it unique. The fund moves in and out of performing sectors. For example, when 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 was relatively low (average 4 per cent) thus putting some strain on fund's returns.

Now, mid-caps are a performing category and the fund has started investing in them. Against an average 75 per cent of large-caps in the past, mid-caps occupy nearly half of the fund's portfolio in recent months. With this mix of mid- and large-caps, HDFC Equity has delivered a top-half return of nearly 16 per cent in 2004 till November 25.

As the second half of 2004 has once again been the year for mid-caps, HDFC Equity's mid-cap bets like Crompton Greaves, Uniphos Enterprises, Century Textiles and Avaya Global Connect have been hugely rewarding. The fund has gained 35 per in the six-months ended November 25, 2004. The fund's low exposure in FMCG and high allocation to technology and financial services sector also helped reap good gains in the period. Though the fund has managed to perform in line with the category average, it has been unlucky with Infosys. It sold Infosys in May 2004 and bought it again at higher levels in October. During this period, the stock has gained nearly 70 per cent.

HDFC Equity has an impeccable record of being in the top quartile of its category for the fourth straight year till 2003. It has also outperformed its benchmark S&P CNX 500 for seven continuous years. Fund manager Prashant Jain does not hesitate to take big positions in a sector if he is convinced, as has been the case with technology sector. Its top-three sectors-technology, financial services and diversified-account for 55 per cent of the portfolio, and technology alone accounts for half of it.

It has successfully managed the risks of a concentrated portfolio and with average volatility, it merits a place in all long-term portfolios.