HDFC Equity Fund: Caution Ahead? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

HDFC Equity Fund: Caution Ahead?
Nov 1, 2019

Equity market in the recent past has been taking investors on a roller coaster ride -- fluctuating between thrilling highs and dangerous lows. During such uncertain time, a multi-cap approach that has the flexibility to shift its portfolio in line with changing market conditions can prove to be a worthy bet for investors.

HDFC Equity Fund is one such multi cap fund that aims to generate long-term capital appreciation by investing predominantly in equity and equity related instruments.

Launched in January 1995, the fund's asset size is among the largest in the category at Rs 22,491 crore. It is managed by ace fund manager Mr Prashant Jain, while Mr Amar Kalkundrikar is the co-fund manager looking into the overseas equities in the portfolio.

--- Advertisement ---
You're missing out on a profit source that's up to 200X bigger than stocks

Stocks have been performing terribly over the last 2 years...And it’s probably cost you a lot of money.

But what if we told you that instead of stocks - there’s another profit source that you can tap into...

One that’s up to 200 times bigger than stocks...

And has the potential to deliver explosive payouts like Rs 63,400 in 1 day, Rs 18,250 in 1 day, Rs 13,950 in less than 12 hours and a lot more.

When you can tap into a profit source like this, you won’t need to rely on stocks to build a fortune.

Now over the last 30 years, India’s #1 trader has been using a special Blueprint to trade these profit sources...And we’ve convinced him to share it with you.

All you need to do is register for a special summit we’re holding on the 26th of November.

Register now – it’s free.

*Past performance does not guarantee future results.
*Two lots of each trade have been assumed to calculate the returns of all the backtest examples used.

------------------------------

Graph 1: Growth of Rs 10,000 if invested in HDFC Equity Fund 5 years ago

Over the last 5 years, HDFC Equity Fund has performed like an ordinary fund, with multiple bouts of underperformance. Had you invested Rs 10,000 in HDFC Equity Fund five years back on October 29, 2014 it would now be worth Rs 15,119 (calculated on October 29, 2019). This translates into compounded annualised growth rate of 8.62%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark Nifty 500 - TRI would have grown to Rs 15,637 (a CAGR of 9.35%). As we can see in the chart alongside, the fund has failed to generate lead over the benchmark in the last 5 years.

Graph 2: HDFC Equity Fund year-on-year performance

The year-on-year performance comparison of HDFC Equity Fund vis-a-vis its benchmark Nifty 500 - TRI shows that the fund managed to outperform the index in just 4 out of last 10 calendar years. The fund's performance was nearly in line with the benchmark in CY 2011, CY 2012 and CY 2017. In CY 2018 the fund struggled to limit the downside and trailed the benchmark by a significant margin. It has underperformed the benchmark in the current year as well.


Table: HDFC Equity Fund performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1-year (%) 2-year (%) 3-year (%) 5-year (%) Std Dev Sharpe
Kotak Standard Multicap Fund 26,991 4.61 10.00 14.72 17.56 13.13 0.08
JM Multicap Fund 139 1.25 7.45 14.66 15.84 14.22 0.09
Edelweiss Multi-Cap Fund 456 0.94 11.35 14.19 NA 14.29 0.08
HDFC Equity Fund 22,491 4.22 9.57 14.12 13.48 15.56 0.04
Principal Multi Cap Growth Fund 847 -3.94 7.80 13.74 14.79 15.39 0.02
Aditya Birla SL Equity Fund 11,247 0.00 6.89 13.57 16.37 13.61 0.00
Canara Rob Equity Diver Fund 1,438 5.11 11.60 13.53 12.62 13.19 0.09
Motilal Oswal Multicap 35 Fund 13,235 -2.87 6.44 13.41 17.57 15.07 0.04
Parag Parikh Long Term Equity Fund 2,205 3.75 11.57 13.01 14.95 8.97 0.13
SBI Magnum Multicap Fund 8,073 1.70 8.97 12.88 17.32 13.26 0.06
DSP Equity Fund 2,786 1.51 8.31 12.53 14.09 15.40 0.06
ICICI Pru Multicap Fund 4,253 2.95 8.61 12.41 15.06 13.07 -0.01
Quant Active Fund 8 0.32 9.96 11.35 16.11 13.78 0.03
UTI Equity Fund 9,536 2.75 10.49 11.30 13.10 13.42 0.04
BNP Paribas Multi Cap Fund 706 -1.85 6.32 11.27 14.71 14.13 0.05
Nippon India Multi Cap Fund 10,021 2.69 9.75 11.04 13.22 16.38 0.02
PGIM India Diversified Equity Fund 118 -0.32 6.81 10.56 NA 14.23 0.02
Invesco India Multicap Fund 905 -6.73 5.58 10.55 16.60 15.97 0.00
L&T Equity Fund 2,643 -2.34 6.47 10.37 12.72 13.02 0.00
HSBC Multi Cap Equity Fund 441 -5.08 4.60 9.60 12.53 16.31 -0.03
NIFTY 500 - TRI 0.78 8.88 12.37 12.24 13.50 0.04
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 29, 2019
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Although HDFC Equity Fund outpaced the benchmark across rolling time periods, it trailed the category average on a 2-year and 5-year rolling return basis.

The fund stood in the top quartile on a 1-year and 3-year rolling periods, while it lagged behind the top performers on 2-year and 5-year rolling periods. Kotak Standard Multicap Fund, JM Multicap Fund and Edelweiss Multi-Cap Fund were the other top performers in the category.

On risk-return parameters, the fund has registered relatively higher volatility. However, its risk-adjusted returns are in line with the benchmark and category average.

--- Advertisement ---
Our No. 1 Recommendation for 2020

This tiny company is Richa Agarwal's No. 1 Small Cap Stock for 2020…

It is a little-known company which trades around Rs 300, but is the backbone behind industry giants like Asian Paints, Vadilal and Heinz…

And has immense profit potential for early investors.

Get all the details here.
------------------------------

Investment strategy of HDFC Equity Fund

Categorised as multi-cap fund, HDFC Equity Fund is mandated to invest minimum 65% of its assets in equity and equity related instruments. It intends to offer diversification by investing in companies across major industries, economic sectors and market capitalisation that offer an acceptable risk-reward balance. The fund seeks to predominantly invest in companies that:

  1. Are likely to achieve above average growth
  2. Enjoy distinct competitive advantages, and
  3. Have superior financial strength

The fund has the flexibility to invest a portion of its assets in debt and money market instruments, and units of REITs and InvITs. However, it prefers to remain fully invested in equities.

Graph 3: HDFC Equity Fund Portfolio allocation and market capitalisation trend

HDFC Equity Fund has the flexibility to invest in equities across market capitalisation, but it allocates majority of the portfolio in large caps. In the last one year, the fund has gradually increased allocation towards large caps to around 90% from around 80%. Meanwhile, allocation towards mid and small caps has been reduced. Its allocation towards mid-caps has been in the range of 6-11% and that of small caps has been around 5%. As the fund remains fully invested in equities, its cash holding is usually well within 1% of its assets.


Graph 4: HDFC Equity Fund top portfolio holdings

As on September 30, 2019 HDFC Equity Fund held 44 stocks in its portfolio. The top 10 stocks constitute a significant 62.4% of the portfolio. ICICI Bank is the top holding in the portfolio with an allocation of 9.9%, closely followed by Larsen & Toubro (9.4%), Infosys (8.4%) and SBI (8.3%). Rest of the stocks in the top 10 holdings have allocation in the range of 3-6%.

The fund's holding is mainly concentrated towards five sectors that constitute around 75% of the portfolio. It has the highest allocation towards Bank at around 30%, followed by Infotech and Engineering (13% each) and Power and Petroleum Products (10% each). Finance, Consumption, Minerals and Pharmaceuticals are the other prominent sectors in the portfolio.

Top contributors

Among the domestic equities in the portfolio, ICICI Bank contributed the most to the fund's return in the last one year with a weighted return of 3.9%. Larsen & Toubro, Infosys and HDFC Bank, were the other top contributors to the portfolio gains. These stocks are part of the fund's top holdings.

On the other hand, stocks like GAIL (India), Tata Steel, Vedanta and Cipla eroded some of its gains in the last one year.

Suitability of HDFC Equity Fund

HDFC Equity Fund's multi-cap approach gives it the flexibility to manoeuvre its portfolio in line with changing market conditions. However, its substantially high allocation towards large caps could limit its potential for high growth. Though large caps are known to provide stability across market phases, the fund's concentrated bets towards few selected stocks and sectors could prove risky if any of these stocks/sectors come under pressure.

The fund's performance track record over the years raises some concerns about its consistency. Further, the higher volatility registered by it means that it is suitable for aggressive investors with a higher risk-appetite and investment horizon of at least five years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have recently identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2019'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

Author: Divya Grover

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "HDFC Equity Fund: Caution Ahead?". Click here!

  

More Views on News

The Smartest Stock to Buy for 2020 (Profit Hunter)

Nov 14, 2019

Small-cap stocks are selling at bargain prices today and are poised to generate a lot of wealth in 2020 and beyond...

How the Modi Government is Helping My Top 7 Stocks (The 5 Minute Wrapup)

Nov 14, 2019

Recent reforms by the Modi government can give a big boost on your stocks, provided you buy the right ones.

Short-term Trading Versus Long-term Investing (Fast Profits Daily)

Nov 14, 2019

How to compliment your core long-term portfolio with regular short-term trading profits.

This Super-Successful Trader is Proof that All Intelligent Investing is Value Investing (Profit Hunter)

Nov 13, 2019

This gentleman's blueprint for trading isn't very different from core value investing principles.

The World's Best Investors Are Traders (Fast Profits Daily)

Nov 13, 2019

If you've chosen to be or are thinking about becoming a trader, this video is for you.

More Views on News

Most Popular

Is Hawkins Set to Become Our Next Superhero Stock? (The 5 Minute Wrapup)

Nov 1, 2019

After PI Industries, Hawkins has put up a stellar show so far.

Crash Alert! Is There a Big Bubble in Nestle, HUL and Asian Paints? (Profit Hunter)

Nov 7, 2019

Is this the beginning of the end of multibagger gains in quality stocks like Nestle, HUL, and Asian Paints?

These 10 Days Are Crucial for Getting Rich in the Smallcap Rebound (Profit Hunter)

Nov 5, 2019

How to avoid the most common investing mistake and make the most of the smallcap rebound.

The Top Stocks for 2020 Pass This Most Critical Metric (The 5 Minute Wrapup)

Nov 5, 2019

Charlie Munger's favorite fictional character, Mr Glotz, picks stocks using this metric.

Why Moody's Rating Downgrade is a Strong Sign to Buy Stocks (The 5 Minute Wrapup)

Nov 8, 2019

Investors who took cues from Moody's rating downgrade in 1992 and 2002 created some of the biggest wealth of their lifetime.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2020
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Nov 14, 2019 11:05 AM

MARKET STATS