Hand-pick stocks, with HDFC Top 200

The fund has consistently beaten its benchmark over the long term

Looking to invest in equities after the Sensex’s recent dash? Going the mutual fund route may make sense.

You can leave the call on sectors and stocks to the fund manager. Old war horse HDFC Top 200 Fund is a sound choice for its sheer experience in riding out market cycles, difficult-to-match long-term returns and its recent surge in performance.

This fund made the most of previous bull markets, faltered on performance about a year ago, but has rebounded strongly.

The bulk of HDFC Top 200’s portfolio comprises large-cap stocks. The fund benchmarks itself to the BSE 200. This wide universe features proven mid-cap stocks that can benefit from a broader market rally.

HDFC Top 200’s return over the last five years, at nearly 20 per cent, places it among the top quartile of funds in its category. Over one-, three- and five-year timeframes it has stayed ahead of its benchmark by 3-8 percentage points.

The fund, however, went through a bad patch in 2013, betting on banks, petroleum products and automobiles ahead of time. But performance has picked up from late last year and bounced back convincingly.

By sticking to a ‘buy and hold’ strategy that is generally anchored in stock valuations, the fund has been able to ride out market cycles well.

Seldom does the fund go overboard on momentum-driven sectors and stocks.

Investors can buy the units of the fund as it has consistently beaten its benchmark over the long term. The scheme is suited to be the core part of an investor’s portfolio.

On a rolling return basis over the past 10 years, HDFC Top 200 has beaten its benchmark 80 per cent of the time, indicating a high degree of consistency. Invest in it for 5-7 years to gain meaningful capital appreciation.

Portfolio and strategy

The scheme’s focus on growth at a reasonable price is apparent in its stock choices. It did not increase exposure to spectacularly performing sectors such as consumer non-durables and pharma in 2012-13 as their valuations rose to uncomfortable levels.

In fact, it reduced exposure to consumer non-durables over the past one year.

Due to its high exposure to banks, the scheme had to contend with significant stock price correction in the segment, but has been able to capitalise fully on the rally in the sector over the past few months.

In the last one year, HDFC Top 200 has increased investments in software, the only defensive segment in its top holdings.

Its other big bets have been raising weights to oil and petroleum product companies, which have had a strong rally, on expectation of decontrol in retail fuel prices.

Banks, especially the public sector ones, have been re-rated on expectations of a revival in loan growth, and abating bad loan risks, as the economy picks up.

Auto is another segment hinging mainly on consumer confidence, that may be among the first to bounce back in case of an economic upturn.

Published on May 18, 2014

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