HDFC Growth: Invest

Investors can buy the units of HDFC Growth, a multi-cap fund, in the light of its impressive long-term track record. Over one-, three- and five-year time frames, the fund has outpaced the returns delivered by its benchmark Sensex.

Though the Sensex may not be a representative benchmark, given the fund's broad mandate, it has still managed to outpace indices such as CNX 500.

Performance

HDFC Growth has delivered a compounded annual return of 10.2 per cent over a five-year period, placing it among the top few funds in the multi-cap category. It has even outpaced peers such as Fidelity Equity and Reliance Equity Opportunities over this period.

By successfully riding on rallies and containing downsides during corrections over the past several years, the fund has remained a consistent outperformer vis-à-vis its benchmark.

Along with large-caps, the fund takes substantial exposure to mid-cap stocks (less than Rs 7,500 crore market capitalisation).

For investors with a moderate risk-appetite, looking for a diversifier with a history of delivering returns consistently, this may be a suitable fund.

Exposure may be considered through the SIP route to ride out market volatility and rupee-cost averaging.

Portfolio and strategy

HDFC Growth takes exposure to mid-cap stocks to the tune of 25-30 per cent of its portfolio. This enabled the fund to outperform in the 2007 rally.

When the tide turned adverse in 2008 and the markets crumbled, the fund took exposure to defensive sectors such as pharmaceuticals and consumer non-durables.

Also, quite uncharacteristically (HDFC funds generally do not have heavy cash exposure in any market cycle), the fund moved to cash and cash equivalents to the extent of nearly 17 per cent of the portfolio, which helped contain downsides.

The fund was quickly able to redeploy cash in momentum sectors such as banks. It also had top exposure to petroleum products and media and entertainment.

Later in 2010, the fund increased exposure to sectors such as consumer non-durables, software and pharmaceuticals, all of which had a good run in the markets. Over the last one year, the fund increased exposure to sectors such as oil and petroleum products as well as capital goods as valuations turn attractive in these segments.

Interestingly, HDFC Growth has been diversifying its holdings and avoiding focussed stock exposures in the last 12-18 months.

It has reduced exposure to most sectors to less than 10 per cent of the portfolio.

The fund seems to churn sectors by taking a combination of momentum and valuation calls. This also indicates that it may not be willing to ride any sector rally.

The fund's top holdings have generally been large-cap stocks from the Sensex or Nifty Basket. These include stocks such as Infosys, HDFC, RIL, SBI, Bharti Airtel and ICICI Bank. Interestingly, the fund has also stuck to Solar Industries, a mid-cap chemicals company and a market outperformer, for a couple of years now among its top picks.

The fund has exited from most of its holdings in the construction sector such as C&C Construction, KNR Construction and even a sound performer such as Godrej Properties, given the negative market sentiment in this sector.

HDFC Growth may be suitable for investors looking for exposure to a large number of sectors covering a broad spectrum of the market.

COMMENT NOW