HDFC Top 200: Veteran of many battles and a safe bet - Buy

The fund, with a large-cap slant, has delivered consistently since its inception in 1996

Conservative investors looking for steady returns over the long term horizon can invest in HDFC Top 200, a large-cap fund.

The fund is a good bet in volatile markets, given its notable long-term track record of performance across market cycles and focus on quality BSE 200 stocks.

Investments can be done through the systematic investment plan (SIP) route, to tide over intermittent correction in the current bull market.

HDFC Top 200 is a market veteran delivering 20.9 per cent annualised return since its inception in 1996.

Following a strong performance in 2014, the fund was an underperformer in 2015 due to correction in banking stocks. But the fund managed to recover in 2016 and its performance has been good so far.

The turnaround in the fund is evident as it has outperformed its benchmark, the BSE 200 index, 94 per cent of the time in the last one year.

Moreover, this rally is backed by a strong show in the banking sector as the fund has allocated a chunk of its portfolio to stocks in this sector.

Over one, three and five-year periods, the fund has outshone its benchmark by delivering returns of 20.3 per cent, 12.5 per cent and 17 per cent, respectively.

The fund is among the top three performers in the large-cap diversified equity category over the past 10 years; it has generated compounded annual returns of 13.3 per cent against the category average return of 9.8 per cent.

Performance and strategy

HDFC Top 200, a large-cap oriented fund, has participated well in market rallies while managing the downside better despite its under-performance in 2015. The fund predominantly picks stocks from the BSE 200 basket and invests about 90 per cent of its allocation in them. About 10 per cent of allocation goes into the mid-cap segment.

The large-cap bias could be a reason for its lacklustre performance in 2015 when some of the large-cap funds with more mid-cap exposure took advantage of the bull run in the mid-cap segment.

However, the large-cap slant makes the fund a safe bet across market cycles. So it can be a part of one’s core portfolio.

The fund’s asset allocation is largely concentrated, with the top three sectors making up about 49 per cent of the portfolio and the top 10 stocks accounting for about 49 per cent. But this hasn’t stalled its performance as the focussed approach has been backed by sound sector and stock choices.

Banking is the top preferred sector with the allocation moving above 30 per cent, followed by software and construction projects sectors.

The fund has opted for frontline stocks in these sectors such as HDFC Bank, ICICI Bank, SBI, TCS, Infosys and L&T. Most of the stocks are part of the Sensex and the Nifty. However, unlike a passive index fund, it adopts a growth and buy-and-hold strategy.

The fund is overweight on energy, software and construction but underweight on automobile, healthcare and FMCG sectors. It has about 60 stocks in its portfolio, which mitigates risk.

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