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Srividhya Sivakumar

Investments with a long-term perspective can be considered in IDFC Classic Fund. Our recommendation is underpinned by the fund’s sound portfolio of fundamentally strong companies that hold potential to generate superior returns.

The fund’s past performance has however not been extraordinary. Further given its limited track record, investors should not add this fund to their core portfolio. It could at best be a diversifier with limited exposure. Other large-cap funds such as HDFC Top 200 or DSP BR Equity may be better fits for a core portfolio.

In the last three years, the fund generated a compounded return of over 5.1 per cent, marginally beating its benchmark BSE-200, by over a percentage point.

While it was outperformed during this period by quite a few of its peer funds, IDFC Classic’s ‘fundamental approach’ towards stock-picking, with an obvious bias for large-cap stocks, may stand it in good stead in the coming years, more so as the global financial turmoil appears far from over.

The fund primarily invests in fundamentally strong companies that may or may not be the current flavour in the market.

The remainder of the portfolio is dedicated to companies or sectors that are likely to capture market fancy. And since this may entail a high sector rotation and timely theme selection, the fund’s return would, to that extent, depend on its ability to remain ‘ahead of the curve’.

The calendar year so far has been quite devastating for equity funds. While a chunk of the diversified equity funds have lagged their respective benchmarks in returns, IDFC Classic has bettered its benchmark by 3 percentage points, suggesting that its focus on large-cap companies with strong fundamentals may have worked in its favour.

While this approach to stock-picking may have limited its gains in the months after brief corrective phases in the market, such as in May 2006 and March 2007, it has kept pace with its benchmark most of the times.

On a monthly rolling return basis in the last three years, the fund has outperformed the BSE-200 in as many as 19 months. That said, the average margin of its out-performance over the benchmark has only been similar to the margin of under-performance. To that extent there have been no drastic swings in performance.

While high aggregate exposure to companies with cyclical earnings, turnaround companies and high-growth companies accounted for a significant proportion of the fund’s net assets when it was launched three years ago, its current portfolio barring few companies is largely biased towards large-caps with a relatively stable earnings outlook.

Large-cap stocks (market capitalisation over Rs 7,000 crore) now account for over 65 per cent of its overall portfolio. Further, in the last couple of months it has upped its exposure to sectors such as banks and defensives such as pharmaceuticals and consumer goods, even as it exit the metals pack.

Its portfolio now (as of September 30) sports a high exposure to sectors such as oil and gas, industrial goods and banks. The NAV per unit is Rs 12.3.

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