Worried about the volatility in the market? A large-cap fund with a proven track record can handle the ups and downs better. HDFC Top 200 fits the bill. The fund invests predominantly in large-cap stocks — they make up nearly 90 per cent of the current portfolio. This spells safety and means that the fund can withstand market reversals well while also participating in rallies.

HDFC Top 200 is a market veteran with an enviable 23 per cent annualised return since its inception in 1996. Other than the rare lean patch such as the one in 2013, the fund has done better than its benchmark, the BSE 200. The outperformance has been in the range of 1-3 percentage points over one-, three- and five-year periods. Its consistency is reflected in the rolling returns which have been better than the benchmark more than 75 per cent of the time in the past five years. The fund contained downsides better than the benchmark in 2009 and 2011.

Long-term performer During shorter time frames, HDFC Top 200 may not be the brightest star in the firmament. That’s because unlike many large-cap peers, its holdings of mid-cap stocks, market favourites during raging bull runs, is rather low (5-7 per cent). But a mostly quality large-cap focus becomes a virtue when the tide turns and invariably delivers well in the long run. Over longer periods — five and 10 years — HDFC Top 200 figures in the top quartile among peers.

The fund was ahead of the curve, having about a fourth of the portfolio in the cyclical banking sector in early 2013. This gave it pain during the June to August 2013 downturn, but translated into gain thereafter when the bulls regained the upper hand. Adding to banks and autos in the early stages of the bull-run also helped. Cutting exposure to defensive sectors such as software and pharma over the past year-and-a-half benefited too. The fund avoids a momentum-driven strategy and focuses on value picks.

Smart picks last year such as Axis Bank and Bharat Electronics, which have doubled or even quadrupled, have aided the fund’s returns. Paring stakes in stocks which lost value, such as Jaiprakash Associates, also helped.

Banks account for the largest chunk (28 per cent) of the fund’s portfolio currently. This will help if the economy improves. At the same time, a good 14 per cent of the portfolio still kept in the defensive software sector acts as a healthy hedge against domestic travails.

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