HDFC Top 200: One for the long haul

Making a big bet on cyclical themes has cost HDFC Top 200 on one-year returns relative to its category. But if you are bullish about economic recovery, HDFC Top 200 is one fund you could consider.

This old warhouse has seen multiple market cycles in the last 20 years and has navigated choppy markets quite well. For instance, between January 2008 and March 2009, even as the scheme’s benchmark, the BSE 200 Index, lost almost 65 per cent, the fund was able to contain the fall in its NAV at less than 55 per cent.

Similarly, during the November 2010-December 2011 correction, the decline in the scheme’s NAV was lower at about 27 per cent, compared with a 30 per cent slide in the benchmark.

The fund invests over three-fourths of its assets in large-cap stocks. This has helped it stay afloat even when the going was not good. Currently, about 85 per cent of HDFC Top 200 Fund’s corpus is parked in large-cap stocks.

Given this slant, the scheme is more for the long haul and will suit investors with an investment horizon of at least five years. The fund has delivered returns in excess of 21 per cent annually since inception, higher than the 13 per cent increase in the BSE 200 Index, for the same period. Investors with a moderate risk appetite can consider investing a portion of their surplus in this fund.

Over the last five years, the fund’s annual returns have been better than its benchmark 66 per cent of the time.

This proportion is lower than that of peers, such as ICICI Focussed Bluechip, Franklin India Bluechip and Birla Sun Life Frontline Equity; this was largely on account of moderation in performance over the last seven months. As a result, the scheme’s returns lagged its benchmark on a one-year basis, though it managed to deliver higher-than-benchmark returns over three- and five-year timeframes.

Let down by cyclicals The fund manager’s decision to increase exposure to cyclical themes — financials, metals and capital goods — was a drag on its performance.

For instance, banking stocks, such as Bank of India, Canara Bank, Allahabad Bank and Oriental Bank of Commerce, have shed 25-40 per cent during this period. Metal stocks — SAIL and Tata Steel — have fallen about 35 per cent since April 2015.

So also the scheme’s bets in the power space, with stocks such as Jaiprakash Associates, Rural Electrification Corporation and NTPC failing to perform during this period.

Besides loading up on cyclical themes, paring exposure to pharma stocks such as Divi’s Laboratories did not help performance.

Though higher exposure to cyclical themes may hurt performance during volatile times, it can provide a leg-up to the scheme’s returns if a recovery gathers pace.

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