Management
Prashant Jain, executive director and chief investment officer, has run HDFC Top 200 since June 2003. In fact, he managed this fund since 2001 when Jain was associated with Zurich Mutual Fund, who sold its asset management business to HDFC Mutual Fund in 2003. The fund was launched in July 1996. Jain has overall 16 years of experience in the investment management field.
Strategy
The fund strives to invest in companies within the BSE 200 index or within the 200 largest companies by market capitalization. The manager would like to buy stocks, which are available at discount to their long-term intrinsic value or at attractive price relative to peers.
The manager does not resort to market timing and would not mind staying invested in equities despite volatility in short-term. This was reflected during 2008 when it had just 2-3% allocated to cash, as compared to its peers, which maintained over 20% in cash to avoid market downturn.
The fund’s approach to market timing paid off between March-June 2009, when most funds, owing to their cash exposures, underperformed the broader equity markets, which rallied around 80%. The fund follows long-term and disciplined investment approach to stock selection.
Costs
This is one of the low-cost actively managed funds in the Morningstar Large Cap category. Infact, it was among top-10 low cost actively managed fund. The fund’s latest annual report gives an expense ratio of 1.89%, as compared to the category average of 2.07%. The low expense ratio is primarily owing to an increase in the assets of the fund.
Performance
The fund’s long term investment philosophy and disciplined investment approach helped it to achieve strong outperformance in long term. The fund has a superb track record and had never underperformed its benchmark across various short as well as long term investment periods as of June 2009.
Its trailing return since inception (July 1996) was 25% versus benchmark return of 14% and always featured in the top-10 list across various investment horizons in long run. Performance over discreet calendar years also showed outperformance except in 2006 and 2007 when its performance was marginally worse than the benchmark.
Overall, the fund performed well in up markets and declined less during market downturns as reflected by its historical up-capture and down-capture ratios of 99% and 79% respectively in the past 5 years.
The fund’s volatility of 28.9% over the last 5-years was lower than the corresponding figures turned in by its benchmark 32.4% and was marginally higher than 28.8% as reported by its peers.
The fund’s top-10 holdings include leaders in their respective businesses like ICICI Bank, Infosys Technologies, Oil and Natural Gas Corp., State Bank of India, Reliance Industries, Bharti Airtel, etc.
From a sector perspective, banks (17%), consumer non durables (11%), software (9%), pharmaceuticals (9%) and finance (8%) accounted for top five holdings in the fund’s portfolio.
Stewardship
HDFC is the most shareholder-friendly and respected fund companies around and is currently the second largest asset manager in India. The fund manager believes in long term investing through mutual funds and invests in this fund. However, he did not disclose the quantum of his investments.
Conclusion
This is one of most fundamentally sound large cap funds around. The management’s active and disciplined stock selection approach makes it appropriate as a core holding.