HDFC Equity Fund: Plays market cycles with panache

While the fund’s slant is towards large-caps, mid and small-caps add spice to returns

Investors looking to bet for the long term can consider buying the units of HDFC Equity Fund. The fund predominantly follows a long-term approach and has a good record of delivering healthy returns. It offers a good cover from volatility and can be a part of the core portfolio. It provides cushion during market declines but delivers good returns in the long term.

The fund is positioned in the top quartile of the large-cap fund category 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.

The fund limits the downside well in market corrections and contributes in secular rallies. For instance, it has been participating well in the market rally that began last February. It has clocked 23.4 per cent returns against its benchmark, Nifty 500’s return of 15.6 per cent over the last one year.

Portfolio and strategy

HDFC Equity is predominantly a large-cap fund with some exposure in mid-cap stocks and has maintained equity exposure of over 97 per cent of the portfolio over the past many years. This has ensured good gains during market rallies, although it can increase the risk in volatile market phases. Following a strong show in 2014, the fund underperformed its benchmark in 2015 due to a correction in banking stocks, which was the top preferred sector.

Apart from banks, software and automobiles have also been the fund’s top sector choices over the last two years. However, the fund has trimmed its exposure to software, which is currently facing challenges and has also pared holdings in automobiles over the last one year. It has increased its exposure in State Bank of India and ICICI Bank which could benefit from an economic recovery over the long run.

The fund has also placed its bet on construction projects and the power sector. CESC, Power Grid Corporation of India and Kalpataru Power Transmission are some of the stocks that have yielded good returns in the last one year.

The fund’s top ten equity holdings account for 55 per cent of assets and top three sectors account for 50 per cent. It does not take concentrated exposure in individual stocks or sectors, barring a select few bluechips.

After riding the consumer non-durables theme in 2012 and 2013, the fund shifted its focus and took bets on petroleum products. But it has reduced its allocation in the space recently. In the past one year, the fund has upped its allocation in ferrous metals due to revival in global metal prices. The stock of Tata Steel has more than doubled during this period. Meanwhile, the fund has ventured into new sectors such as transport and gas by taking exposures in Adani Ports and GAIL India.

Mid and small-caps which constitute about 20 per cent of the portfoliohave also added a kicker to the returns. For example, stocks such as Siti Networks and Time Technoplast have delivered good returns in the last one year.

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