HDFC Equity: Buy

Smart moves, fund manager stability have helped it shine

Want to shelter your portfolio from volatility? HDFC Equity is one fund which not only cushions your portfolio during market falls but also generates healthy returns over the long term. The largest fund from the HDFC stable with assets in excess of ₹11,500 crore, HDFC Equity tops the performance chart over one-, three- and five-year time frames.

Investors with a moderate risk appetite can invest in the fund with at least a five-year horizon.

Regular dividends

The scheme’s expense ratio of 2.2 per cent is much lower than the average of other funds in the large cap category. If steady income from investment is the need, HDFC Equity fits the bill. The fund has been paying dividend every year since 2002.

Prashant Jain has been managing the fund since the erstwhile ZurichMutual’s Equity fund was merged with HDFC in June 2003. Fund manager stability is yet another strong point for the fund.

Beats the benchmark

HDFC Equity has outperformed its benchmark CNX 500 index during rallies by huge margins.

For instance, during the March 2009-November 2010 period, the fund’s NAV jumped about 3.5 times even as the benchmark rose 2.5 times. The fund’s one-year return has been higher than the CNX 500 Index nearly 68 per cent of the time in the last five years.

Catching stocks such as tyre-maker Balkrishna Industries and CMC ahead of competition helped the fund consistently maintain top quartile performance across time periods. The stock of Balkrishna Industries swelled fourteen fold in the last five years.

Systematic monthly investment in the fund over the last five years would have earned annual returns in excess of 17 per cent.

Betting on recovery

HDFC Equity added to its holdings in cyclical themes such as financials and construction in early 2013, anticipating an economic recovery and a softer interest rate regime.

But sensing the delay in revival, the fund quickly increased allocation to defensive themes, such as software.

Post the August 2013 low, the fund has shed its defensive bent and has added stocks in the financials, metals, and construction space while reducing exposure to export-heavy themes such as IT, pharma and auto. The fund held 50 stocks in its portfolio as of April.

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