The Hindu Business Line : HSBC Dynamic Fund: Hold

Investors can continue to hold the units of HSBC Dynamic Fund, considering its ability to contain downsides during market turbulence, and to keep up with its benchmark during market upswings. The fund is relatively new, launched only 10 months ago.

The fund is allowed to switch to debt completely, in case of market turbulence. This, in the current investment climate of higher yields on debt, may be more suited to deliver steady returns.

Barring very few large-cap funds, HSBC Dynamic has contained losses better than most diversified equity funds. But a large debt portion (25-30 per cent) in the portfolio means that when markets turn around, the fund may not be able to outperform peers, but may match or better the returns of balanced funds. The fund may be suitable for investors with low risk appetite and those looking to contain losses during market slides.

Performance and suitability: HSBC Dynamic’s NAV has fallen by 10.8 per cent since September last year, while its benchmark — BSE 200, has declined in value by 18.5 per cent.

Taking advantage of a mandate that allows a 100 per cent switch to debt, the fund has steadily increased this portion to 31.5 per cent by June. This has allowed it to contain downsides better than its pure equity peers.

Significantly, even in the September 2007-January 2008 period when the bull run was continuing in the markets, the fund has only mildly underperformed its benchmark.

Dynamic asset allocation may allow this fund to deliver better returns as compared to balanced funds, which stick to a steady state asset allocation.

However, as it may be difficult for the manager to get his dynamic calls right all the time, there is a risk of the fund failing to capitalise on upside in the equity markets, if this is shortlived.

Over the long term, a lower allocation to equity may also result in the fund delivering lower returns as compared to diversified equity funds. The current rising interest rate scenario has resulted in rising yields on bonds and debt instruments.

With the RBI’s thrust on containing inflation through credit tightening, this situation may persist for the next few quarters. HSBC Dynamic Fund, with its high debt allocation, may be able to benefit from the opportunities in the debt market, arising from these trends.

Portfolio strategy: In its equity portion, the fund invests across market capitalisations and has maintained an average 25 per cent of its portfolio in mid-cap (less than Rs 7,500 crore) stocks. Investments are made in around 30 stocks at any point in time, resulting in a compact portfolio.

From exposure to hot themes of the past year such as construction, capital goods and banks, the fund has, of late, moved to sectors such as pharma, consumer non-durables and software. The Oil and Gas sector still figures in prominence. This indicates that the fund has geared itself to contain downside in the current volatile market.

ITC, Bharti Airtel, Infosys, Cairn India and L&T are some key stocks that the fund holds.

Fund facts: The NAV per unit of the growth scheme is Rs 8.9. Mr Mihir Vohra and Mr Jitendra Sriram manage the equity portion while Mr Alok Sahoo manages the debt part of the fund’s portfolio.

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