Friday, 3 July 2015

What is the strategic and tactical orientation of your fund?

HDFC Equity: Top gun
This perennial winner has a massive fan following. And rightly so! Like a magician repeating a trick, HDFC Equity has beaten the category average every single calendar year since 1997. Its ability to identify opportunities at the right time is the key factor contributing to its success. For example, when the Supreme Court halted PSU disinvestment in September 2003, the fund sold its entire energy holding and built a fresh position in March 2004, when PSU stocks started rallying.
Though the fund maintains a large-cap bias, it does not hesitate to invest substantially in stocks of smaller companies, as and when there are opportunities to exploit. Currently, large-caps account for 51 per cent of the assets while the mid- and small-cap allocations stand at 42 and 6 per cent respectively.
The fund manager has always boldly ridden his convictions. He refrains from taking cash calls and prefers to remain fully invested at all times. Historically, his portfolio has been a focussed 25-30 stocks. But the complexion of the fund seems to be changing on this front. The number of stocks has increased to over 45. And, the concentration in the top five holdings has been moderated from 35-40 per cent about a year ago, to just around 25 per cent now.
This is probably not reflective of his stance but rather an adjustment to the size. Investors have flocked to this fund in droves making it the largest diversified equity offering of Rs 5,000 crore. And this very factor may be detrimental to the strategy of the fund. The fund’s ability to identify opportunities and take meaningful exposure in them will be neutralised by its increasing size. The fund has displayed ample spunk till date, but it remains to be seen how it fares from here on.
NAV: Rs 182.838 (28/09)
Entry Load: 2.25% for investment less than Rs. 5 Cr.
Exit Load: Nil
Expense Ratio: 1.83%
Launch: Dec ‘94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Prashant Jain
Top sector weights
% of Assets
Capital Goods17.68
Financial Services12.13
Consumer Non-Durable8.85
Fund Manager: Prashant Jain
Hard to forecast
Jain is one of the most revered fund managers, known for his astute stock picking abilities. All his funds are five-star rated, be it equity or balanced. The impressive list includes HDFC Equity, HDFC Prudence and HDFC MIP Long Term.
Jain worked for two years with SBI Mutual Fund before joining Zurich India AMC. In 2003, HDFC Mutual Fund took over and he has been with the fund house ever since. An engineer from IIT, he holds an MBA from IIM.
Do you see a market crash in the near future? 
In my opinion, a “crash” is probably too strong a word for the Indian market. But a correction can never be ruled out.
It is true that the Indian market is somewhat expensive, but it offers a unique combination of size and growth. Global investors are increasingly looking at India as a mainline asset class and are therefore, investing with a long term view. If you look at Indian P/E's of nearly 20, 15-20 per cent earnings growth, interest rates of 4-6 per cent prevailing outside India and an appreciating currency, then Indian P/E's still look reasonable. India is somewhat expensive compared to the past and to the prevailing interest rates locally. But when viewed in the global context and in view of improved size, fundamentals and visibility of the Indian economy, the market does not appear to be unreasonably valued.
What is the strategic and tactical orientation of your fund? 
We refrain from taking significant cash calls, as we believe investors are doing the asset allocation at their end. Further, it is extremely difficult to time the markets. For instance, early 2000, when the market was at a peak, the cash levels in funds were extremely low. But in September 2001, when the market was at the bottom, cash levels were higher.
In view of the above and the attractive medium to long-term outlook of equities, HDFC Equity Fund continues to remain nearly fully invested.
In the case of HDFC Prudence, the fund has been overweight on equities since 1999. The exposure to equities is between 70-75 per cent and the rest is in bonds. One change that has been done in the last six months is that the maturity of the fixed income portfolio has been increased. This is because the risk reward equation of long maturity bonds is favorable.
Which are your top sector preferences?
Both funds are overweight on capital goods, banking, media and FMCG stocks. The Equity Fund has a lesser exposure to mid caps than Prudence.

Comment:  Learning the working of a fund manager.  

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