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Investors can buy units of HDFC Top 200 fund (top 200), considering its long and impressive track record. The fund has outperformed its benchmark BSE 200 consistently across one- three- and five-year time frames.
In the last ten years, it has generated compounded annual returns of 28 per cent, making it the best performer in the large-cap diversified funds category. During a five-year period, the fund had delivered a compounded annual return of 8.75 per cent, just a shade below Quantum Long-term equity fund.
Top 200, a large-cap oriented fund, has participated in market rallies and also contained downsides better. It is only in the 2007 rally that the fund lost out to the benchmark and its peers. Lower exposures to the then momentum stocks in the real-estate, construction and capital goods sectors may have been the cause. Also, that rally was led by mid-caps.
However, in the market correction of 2008-09, the fund’s NAV slid much lower than the BSE 200. In the rally from March 2009 to November 2010, the fund was among the top 5 performers in its category. With a steady track record for nearly 16 years, HDFC Top 200 is suitable for the core portfolio of investors. While investors with low to medium risk appetite can take exposures, the SIP (Systematic Investment Plan) route is preferred. Given the volatile market conditions, SIPs will help ride out short-term losses and average costs.
Strategy
The fund mainly invests in the BSE 200 basket and has a large-cap bias (stocks with market capitalisation of over Rs 7,500 crore). Almost its entire portfolio is invested in such stocks in recent times.
A large-cap bias may be one reason why the fund has underperformed some of the other diversified funds such as Quantum Long-term Equity, HDFC Equity or Birla Sun Life Frontline Equity in the last six months. Stock market gains in this period have been driven mainly by mid-cap stocks. However, Top 200’s return is superior to DSPBR Top 100, a peer fund. Besides, increased exposure to banking stocks, which took a beating during this period, could be another reason. Stocks from the banking space have constituted about 26 per cent of the fund’s portfolio in the last six months. This is higher than the 20-22 per cent levels in the July-December 2011 period.
But the large-cap focus will help the fund reduce negative impact from any earnings surprises in mid- and small-cap stocks. This is especially true at a time when the economic slowdown is in no hurry to reverse. Large-caps will be able to hold on to their pricing and take on persistent high interest rates better than mid and small-caps.
Portfolio
As on June 2012, defensives such as consumer non-durables, pharma and software are the most favoured sectors after banks. The fund has reduced exposure to power and auto stocks in recent months. SBI, ITC, ICICI, Infosys and L&T are the top five holdings. It has about 35-40 stocks in its portfolio. Individual stocks, barring two or three, account for less than 5 per cent of its portfolio which reduces concentration risk. The NAV of the growth option is Rs 190.95.
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