The Hindu Business Line : HDFC Premier Multicap Fund: Switch

THE performance of the HDFC Premier Multicap Fund has trailed peers as well as other equity funds from the HDFC fold in the period since launch. Investors who have a substantial portion of their portfolio parked in this fund should switch some of their investments into funds such as HDFC Equity and HDFC Top 200 that have a better record of short- and long-term performance.

Hold on to the investment if the Premier Multicap is one of your many fund holdings and takes up a relatively small proportion of your portfolio. The fund is yet to complete even a year since launch and HDFC Mutual, as a fund house, has an impressive track record in managing equity funds.

Like other multicap funds launched at the time, HDFC Premier Multicap Fund allows the fund manager to flexibly allocate funds between "bluechip" large-cap and mid-cap stocks. In the months since launch, the fund has been predominantly invested in large-cap stocks (defined here as stocks with a market cap of over Rs 2,000 crore).

Between 70 and 85 per cent of the fund's portfolio has consistently been invested in large-cap stocks.

The preference for large-caps has been a good strategic choice, given that they have significantly outperformed mid-caps since the fund's launch.

The allocation to large-cap stocks has helped the fund earn an absolute return of about 43 per cent in less than a year since launch and outperform its benchmark, the S&P 500. But the fund's returns still pale in comparison to Franklin India Flexicap Fund (56 per cent), a fund with similar objectives, and other diversified funds from the HDFC pack.

HDFC Equity Fund has managed a 61 per cent return in the period since the Premier Multicap's launch, while HDFC Top 200 fund has turned in 54 per cent.

Engineering companies, software and banks have been the fund's top sectoral positions over the past few months. However, it is the stock choices, rather than its sector allocations that have influenced its performance in the past nine months. Stocks such as Bharti Tele-Ventures, SBI and BHEL, consistently among the fund's top holdings, have been slow movers in the recent market rally. But these stocks could catch up, going forward, and may have reasonable appreciation potential over the long term.

In December, the fund trimmed its exposures to PSU banks and the metals pack, and stepped up investments in construction and computer hardware. But overall, the fund seems to follow a buy-and-hold strategy, preferring to rejig just two or three stocks each month. The strategy continues to lean heavily towards large-caps, the latter forming over 80 per cent of the portfolio at end-December.

With the valuations of large-cap stocks running up sharply over the past nine months, most of the stocks in the space appear to be fully valued at this juncture.

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