Top quartile returns in three of the four calendar years of its existence and over 50 per cent annualised return since launch in December 2000 make it one of the huge successes in the tax-planning funds category. In the five-year period ending April 7, it delivered a 56.71 per cent annualised return - best in the category. Investors have duly acknowledged the fund's achievements. In the last one year, its assets have swelled nearly five-fold.
Till late 2004, the fund flourished by keeping nearly 85 per cent of its assets parked in around 25-30 mid- and small-cap stocks. However, with the markets touching historic highs, the fund has partially diluted its aggressive posture to accommodate more large-cap stocks. Tushar Pradhan, who assumed responsibilities in September 2004, is constantly trying to improve the quality of the portfolio. With nearly 40 per cent allocation to large-cap stocks, average m-cap of over Rs 4,200 crore (substantially up from Rs 1,300 crore a year ago) and portfolio spread over around 40 stocks, this fund looks much better placed to negotiate any downside. Though this has meant marginal slowdown in the fund's returns as compared to some of the racy funds in the category, the portfolio looks much more convincing today. Historically, the fund's management has shown great agility to exploit opportunities as well as protect the wealth created. For instance, when the markets tanked in January 2004, the fund negotiated the period quite well maintaining a low exposure to tech stocks. The fund survived the May 2004 debacle and ended the second quarter of 2004 down only 0.25 per cent, while its average peers bled, losing an average 9.22 per cent. A large exposure to mid- and small-cap stocks (an average 88 per cent) helped. The fund started with a large-cap orientation but changed track to exploit the mid-cap rally. Having enjoyed the fruits, the fund has started to move out of illiquid mid- and small-cap stocks. One of the arguments traded against the fund is that it's yet to see a downside. But its agility and ability to protect returns in whatever little opportunities it got makes one confident enough to invest here.
Though we still believe that HDFC Taxsaver is a better option, HDFC Long Term Advantage can prove to be a worthy choice for all long-term portfolios.