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Top Notch

With a quality conscious portfolio and a preference for large-caps, the fund will add value to those who want to step into the equity markets with a conservative approach

If you are looking at an equity fund that invests only in India's largest companies, you will like HDFC Top 200 Fund. This fund limits its investing universe to the stocks constituting primarily the BSE 200 index plus stocks that can qualify to be among the 200 largest capitalised companies.

The stocks that the fund invests in are typically large-cap, blue chip and are frequently traded. HDFC Top 200 has stayed largely diversified at the stock level, though the exposure to the top three holdings tends to be higher than some of its peers. In May 2005, the top three holdings accounted for over 24 per cent of the portfolio.

The fund actively rotates across sectors, sticking to its universe of stocks. In 1999, it was overweight in FMCG and pharma sectors. In 2000, the fund apportioned a third of its corpus to technology stocks, which resulted in the fund losing more than the category average as tech stocks fell.

In 2001, the situation improved and the fund lost much less than the category. A high exposure to the FMCG sector helped the fund avoid disaster. Since then, the fund has performed well to consistently deliver above average returns. In 2004, it clocked a poor performance and was ranked in the third quartile for two quarters. Last year, mid-caps were the major performers and HDFC Top 200 with its large-cap bias was unable to do as well as its peers. Otherwise, the fund boasts of a good long-term record, and ranks seventh over three- and five-year horizon.

In recent times, technology has once again become the top holding, followed by energy and financial services sectors. In spite of the tech sector accounting for 24.75 per cent of the portfolio, the fund looks diversified at the sectoral level.

Although mid-caps have never accounted for a sizeable part of the portfolio, the fund has further reduced exposure to them. Mid-caps are now at less than 14 per cent in June 2005 against 22.28 per cent in January 2005. Small-caps have always been a rare sight in the portfolio.