The Hindu Business Line : HSBC Equity Fund: Invest

If you’ve been looking for an opportunity to invest in equities with a five-year perspective, this may be a good time get started. The Sensex, at 14600, is 30 per cent below its peak level of January.

For investors seeking diversified equity funds for their core portfolio, HSBC Equity Fund is a good choice, for its impressive 5- and 3-year track record and ability to bear up well in a choppy market. A bias towards sectors such as FMCGs and telecom services and a significant large cap tilt, helped the fund weather the recent corrective phase well.

Suitability: Both its stock choices as well as return record suggest that the HSBC Equity Fund is suitable for more conservative equity investors. The beta of 0.8 (as of May 2008), suggests a lower propensity to move with the markets.

The fund has contained declines in its NAV to levels well below that of the market in recent times. It has declined 24 per cent on a year-to-date basis in 2008, against an average decline of 30 per cent for the diversified category and 29 per cent for the benchmark-BSE 200.

Performance: A five-year compounded annual return of 47 per cent places HSBC Equity Fund within the top five diversified equity funds, in the return rankings for a five-year period. The three-year returns, at 32 per cent and one-year return at 17.4 per cent are equally impressive and put the fund among the top ten per cent, by returns.

The roller coaster market of 2008 has opened up a fairly wide divide between diversified equity funds, with year-to-date returns ranging between a negative 20 per cent and a negative 43 per cent for the category. HSBC Equity has managed to weather this phase relatively better, its NAV losing about 24 per cent till date in 2008, against a loss of 29 per cent on the BSE 200 — the benchmark.

The fund’s sizeable exposure to sectors such as FMCGs and telecom services, apart from the fact that it hasn’t been fully invested, has helped its performance. Though banks and construction, two sectors worst hit by the recent decline, were among the top sector bets in December 2007, the fund’s well-diversified portfolio (top sector bets haven’t exceeded 15 per cent of assets on any recent occasion) appears to have helped contain NAV erosion.

By March, the fund had moved into consumer non durables (FMCGs), petroleum and telecom as its biggest sector choices and these probably helped it contain subsequent declines well.

Despite a traditional preference for frontline IT stocks, the fund was underweight in IT for much of 2008 and has pegged up exposure to the sector only in May 2008.

The fund has retained a 13-15 per cent allocation to debt instruments in recent months, which also may have helped contain downside.

This may be a reflection of the fund’s cautious short to medium-term view of equities; given that it expects a moderation in earnings growth from 20 per cent to 15 per cent levels for FY09.

Fund facts: HSBC Equity Fund was launched in December 2002 and invests in a mix of large and mid cap stocks with a bias towards the former. The fund manager is Mihir Vora.

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