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S. Vaidya Nathan

INVESTORS in HDFC Growth Fund can sell their holdings, especially on strength in the broad market, and switch to options with a superior performance across different time periods.

HDFC Growth Fund has done well to capitalise on the bullish phase in stock prices, with the NAV clocking gains of about 90 per cent over the past six months. The fund has outperformed the broad market comfortably. But its track record over the three-year period since its launch in September 2000 has been modest.

If the returns per annum since launch appear respectable, at about 15 per cent, it is largely due to gains notched up over the past six months. That this figure was 4.8 per cent four months ago indicates the extent to which the bullish phase has helped ramp up three-year returns.

During this period, funds such as Prima, Bluechip, HDFC Equity and HDFC Tax Saver have turned in a much better performance. The fund's ability to do well across different phases of the market is still largely untested.

In this backdrop, investors may be better off capitalising on the spurt in NAV. They could switch to funds that have a consistent track record over the long term as well as across quarters over the years.

Suitability: The risks in HDFC Growth Fund are largely similar to diversified funds, except that the aggressive management style enhances this element by a couple of notches.

However, the fund has not delivered the kind of returns that could compensate for stepped-up risk element.

Investors looking for diversified equity options could look at this fund, but only after superior choices, such as Bluechip, Prima, HDFC Equity, HDFC Tax Plan and HDFC Tax Saver, have been exhausted. Even at that stage, the fund would have competition aplenty from others, leaving investors with choice.

Portfolio overview: The following are the salient features of the HDFC Growth portfolio over the past six months, which also encompasses the bullish phase in equities:

The churn has been fairly high with the portfolio turnover (purchases and sales viewed in relation to net assets) at about 155 per cent.

Asset allocation to individual stocks, at less than 5 per cent barring the top two holdings, has been conservative. Even for the top holdings, the weights have not breached the 10 per cent level.

The fund has remained fully invested with about 95 per cent of assets in equities.

The portfolio is a mix of large-cap stocks and mid-cap stocks, with a tilt in favour of the former. The top ten holdings also have a similar profile.

Tata Steel has been at the forefront of the portfolio with a steady increase in the level of holdings. Stocks from steel sector account for 12.6 per cent of net assets and include mid-caps such as Maharashtra Seamless and Jindal Strips.

The other stock that the fund has taken to in a big way is Great Eastern Shipping, with holdings in excess of a million shares, accounting for 3.6 per cent of assets.

The fund appears to have engaged in active profit-booking in stocks from the engineering sector, which was the top sector preference in July, when the bullish phase was at a nascent stage.

Now the top sector preferences are banks, steel and commodity chemicals (and such others as Goodlass Nerolac, IPCL and Reliance Industries).

Stocks from the pharmaceutical sector have gradually had an enhanced presence. But in October, the fund appears to booked profits to capitalise on the spurt in prices. As a result, the weight of pharmaceutical stocks is lower by 3.5 percentage points at 5.6 per cent of assets.

The fund has placed much store by auto ancillary stocks such as Sundram Fasteners and Sundaram Clayton. Ashok Leyland is only stock from the ranks of automobile producers to figure in the portfolio.

If the fairly impressive growth rates in the auto sector continue, the fund may miss out on potential upside in auto sector stocks.

: The minimum investment amount is Rs 500 and in multiples of Rs 100. The entry load is 2 per cent. There is no exit load. The fund had an asset base of Rs 277.9 crore at the end of October.

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