HDFC Premier Multi-cap: SELL

Generally, funds with a multi-cap mandate are expected to reward their investors well over the long term as they take higher risks through allocation to mid-cap stocks. But only a select few manage to deliver superior returns over their benchmark.

In this regard, HDFC Premier Multi-cap fund has had a lackadaisical run over the past three-four years, lagging in returns not only in comparison to its benchmark — CNX 500 — but also falling significantly behind the category average. Over a five-year timeframe, the scheme barely matches its benchmark’s returns. Investors in the fund can consider exiting its units given its prolonged underperformance.

The returns delivered by HDFC Premier Multi-cap over the longterm place it in the mid to bottom quartile of funds in its category.

Across timelines, it has lagged multi-cap funds, such as Canara Robeco Equity Diversified, Franklin Flexi-cap and Mirae Asset India Opportunities by 7-10 percentage points.

HDFC Premier Multi-cap has fallen at a compounded annual rate of -6.3 per cent over the last three years. This was worse than its peers and the CNX 500 by a good 4 to 4.5 percentage points. Clearly, the scheme may not be the ideal vehicle for investors to derive strong capital appreciation over the long term.

The fund, true to its multi-cap mandate, invests in stocks across market capitalisation.

Mid-cap stocks (less than Rs 7,500 crore market capitalisation) have accounted for 25-30 per cent of the scheme’s portfolio. With the markets deciding to punish mid-cap stocks in general over the past year, the fund’s NAV was eroded significantly. But many of its peer funds still managed to contain the downsides well despite sporting a similar mid-cap proportion in their portfolios, or even higher in some cases.

Strategy

HDFC Premier Multi-cap has always favoured banks and software, which have figured among its top picks over the years. But it went completely overboard on banks as it steadily increased exposure over the last couple of years, with allocation to the extent of as much as 29 per cent of the portfolio currently. If financials are also included, the figure would be 34 per cent.

The fund also pared exposure to consumer non-durables at a wrong time (in 2011), which till then was one of its top few holdings, and also media — both of which have performed quite well over the past couple of years. It increased exposure to petroleum products and gas sectors, which have mostly been a mixed bag.

The fund’s stock selection has also led to its poor performance. Stocks such as Jaiprakash Associates, Coal India, Canara Bank, Bank of Baroda, Jagran Prakashan and Allahabad Bank have dragged down returns. The scheme has exited a few of these stocks over the recent past but that was not enough to stem the fall in its NAV.

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