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HDFC Focused Large-cap: Switch

K. Venkatasubramanian
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In turbulent market conditions, funds focused on large-cap stocks are expected to be an appropriate bet, given their stable earnings visibility and business prospects. But the wrong choice of stocks and sectors or even a concentrated portfolio can lead to underperformance of large-cap funds as well.

In this light, investors can sell the units of HDFC Focused Large-cap owing to its weak performance over the past 3-4 years. They can consider switching over to HDFC Top 200, which is a more stable and stronger performer over the long-term.

Over the past one-, two- and three- year timeframes, HDFC Focused Large-cap has lagged its benchmark by 1-8 percentage points. The fund’s three year returns of 2.7 per cent compounded annually place it among the laggards in the large-cap fund space.

Sector choices hurt

HDFC Focused Large-cap delivered anaemic performances largely on account of the sector choices made in its portfolio.

The fund’s leading choice has always been banks. But the other top sectors that the scheme bet on were poor performers such as construction and software.

Also, the fund did not take any high exposure to consumer non-durables, which has been one of the best performing sectors over the past few years, thus limiting its ability to deliver strongly.

Stock selections too did not work, with laggards such as Jaiprakash Associates, Reliance Industries, JSPL and PGCIL finding their way in the portfolio. Also, mid-cap picks such as Simplex Infrastructures and Sadbhav Engineering too contributed to underperformance.

Given that there are good alternatives from the HDFC stable itself, investors can consider exiting from HDFC Focused Large-cap and move over to HDFC Top 200.

Switching may help

HDFC Top 200, which predominantly focuses on large-cap stocks, has a track record of over 15 years and has been an excellent performer over the long term. The fund is suitable for being part of the core portfolio of investors with a moderate risk appetite.

The ideal way of investing in the fund would be to start an SIP (systematic investment plan) in the scheme and keep making contributions for a period of around five years at least.

In the last five years, the scheme has delivered compounded annual returns of 10.7 per cent, placing it among the top quartile of funds in the category.

The fund follows a ‘buy and hold’ strategy and does not churn its portfolio based on any short-term trends. But it does make suitable modifications over the long term and tends to participate in most protracted market rallies, while mostly containing downsides during falls.

Most of the stocks are from the Nifty basket, with a few others added from the BSE 100 and BSE 200 indices.

(This article was published on June 22, 2013)
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