HDFC Equity: Latch on to it for the long haul

Looking at the short-term performance of the stalwart HDFC Equity is bound to spark some worries.

With a return of 16 per cent in the one-year period, the fund has fallen short of both the category and the CNX 500 (its benchmark) returns.

But for investors with a higher risk appetite and a longer time horizon, HDFC Equity remains a good bet.

True, in the past few years, the fund has lagged the category in markets that trend down.

But when markets followed up with a recovery, it sailed past its peers and broke into the top quartile. On an annual rolling return basis over the past 10 years, HDFC Equity has beaten its benchmark over 70 per cent of the time, pointing to a reasonable degree of consistency.

Picking up in bull runs In the medium to long terms of three- and five-year time frames, the fund has beaten its benchmark CNX 500 index by a margin of three percentage points.

A slide in prices of stock picks, such as ITC and Oil India and relatively poor performances by those, such as Wipro and Bharti Airtel hurt the fund’s one-year return.

The fund fell short of its benchmark in the largely sideways market that prevailed in 2013 too, until the takeoff in August. This was partly thanks to the portfolio’s tilt towards banking, though exposure was trimmed in favour of the better-performing software stocks. Still, stocks such as State Bank of India, ICICI Bank, Bank of Baroda and Punjab National Bank all weighed on performance.

But the conviction here paid off as the sector’s stocks zoomed later. In the 2011 slide, the fund fell as much as the CNX 500 did. But in the run-up the following year, HDFC Equity beat both the benchmark and the category by two to four percentage points. The fund usually adopts a long-term approach and doesn’t churn its portfolio frequently.

Longer-term view HDFC Equity has maintained an equity exposure of more 95 per cent of the portfolio over the past several years. While this can raise the overall risk in bearish markets, it ensures good gains when markets eventually move higher. It also keeps about a quarter of its portfolio in mid-cap stocks.

Banking has held the heaviest weight in the fund’s portfolio for several years. Over the past few months, the fund has reduced exposure to software stocks while upping its holding in automobiles, as well as sound stocks in the capital goods and infrastructure sectors.