Every investor desires a fund that can deliver excellent returns, do that consistently year after year, and protect their wealth during the tough times. Surely, this is a tough ask, but HDFC Prudence has managed to do exactly that. Little surprise then, that this Rs 1,600-crore fund is the largest in the category and manages almost 38 per cent of the category assets alone.
Time and again, this fund has demonstrated why it is simply the best. In the last 10 calendar years, the fund has outperformed the Sensex every single time - no other equity fund can claim such a performance.
Moreover, the fund has also protected the downside well. In the last three months, the fund has lost just 6.24 per cent, less than half the category's loss of over 13 per cent. But how is that possible despite being low on cash, having over 60 per cent assets in equities (majority of which is in mid- and small-cap stocks)? Here is how. First, it lost less in May as many of its top holdings like Infosys Technologies, Crompton Greaves, Reliance Industries fell less than the market as a whole. In fact, one of its top holdings - Goetze (India) posted over 35 per cent return over the month of May. Second, the fund went about buying stocks aggressively to increase the equity allocation from 60 to 75 per cent in June. A subsequent recovery in stock markets would have helped the fund stay in good shape.
The fund has achieved that by spotting the opportunities at the right time and making the most out of them. For example, the fund made an apt shift from the traditional large-cap portfolio towards mid- and small-cap stocks in late 2003. The sector calls have been brilliant. To quote one instance, when energy stocks were shooting up in 2002, the fund manager increased exposure to the sector from 4.3 per cent in January 2002 to 16.7 per cent by March.
On the debt side, the fund prefers a cautious approach and keeps bulk of the assets in quality corporate bonds and now commercial papers. With interest rates moving north, exposure to government securities is on its way down.
The fund has changed its stated asset allocation pattern and accordingly, it has raised its equity allocation to 75 per cent. Expect that to be the norm from now on and be prepared for more volatility.