The Hindu Business Line : HDFC Growth: Hold

Unit holders can retain their holdings in HDFC Growth Fund, given the fund’s improved performance in recent years. The fund’s three-year return, however, reflects the underperformance in the earlier years.

Over a three-year period, it has generated a return of 28 per cent and outpaced its benchmark BSE Sensex by 4 percentage points. This return appears average given that funds with similar exposure to mid caps have performed better over a three-year period.

The fund predominantly invests in large cap stocks and has the flexibility to invest across the market capitalisation. The fund has not adequately compensated investors for the higher risk arising from its exposure to midcaps.

Suitability: With a change in fund manager in April 2006, the fund appears to have witnessed some steady improvement in performance. Investors are advised to watch the performance before committing any fresh inflow. Since the fund invests in mid and small cap and is focussed on high growth stocks it may not be suitable for conservative investors.

Performance: With markets witnessing one of the worst corrections in recent times, most diversified equity funds failed to create wealth for investors over the last one year. HDFC Growth’s one year return is a negative 4 per cent. It, nevertheless, declined 4 percentage points lower than the BSE Sensex.

Notably, despite investing close to 30 per cent of the assets in mid and small cap, the fund has contained loss better than benchmark thus improving its performance record.

Except for a few stocks the quality of its stock picks could have helped it to contain the downside in this highly volatile period. On a rolling return basis in the past twenty four months, the fund has outpaced its benchmark 70 per cent of the times.

Portfolio Overview: The fund has 39 stocks in its latest portfolio and top ten stocks accounts for 50 per cent of the assets. In the past six months the fund has gradually moved into cash which currently accounts for 15 per cent of assets.

In the small cap space the fund took risky exposure to stocks such as Disa India, Technocraft Industries and KNR Construction.

The fund’s bold bets are also visible in picks such as C&C Construction. The fund averaged costs by accumulating this small-cap stock that was beaten down.

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