Strength from diversification

Written by Rahul Jain | Updated: Aug 31 2008, 08:10am hrs
Investors can take a view on HDFC Top 200, a diversified fund has performed relatively better than its peers in the down market situation and is now eight months old. The fund has given negative returns of 8.9% in the last six months. Being one of the oldest funds launched in 1996 the fund has given a decent CAGR return of 25.94%. If one looks at the past portfolio it shows that the sectors the fund has taken more exposure in are banks, industrial goods, petroleum products and non-consumer durables. The proportion however changes every month depending upon the fund managers view. In July 2008, December 2007 and June 2007 month these sectors constituted around 48.66%, 57.17% and 48.31% respectively. However, the fund is overweight in the banking sector and is the major underperformer, which has affected its asset value.

The uniqueness one must look at is its portfolio structure. Slowly and gradually the company has increased its pharmaceutical share from 5.04% in the month of June 2007 to 9.59% in the last month. The pharmaceutical sector acts as a contrarian call in the down market. Hence it has outperformed in comparison to other sectors. Higher exposure in this has given a cushion to the net asset value (NAV) in this bear market and hence the fund has borne a relatively lesser brunt of the meltdown. On the flip side the regular churning of portfolio has increased the portfolio turnover ratio on a higher side at 107.49%. The top picks in the fund in the past portfolios has been ICICI Bank and Reliance Industries. Both the stocks have the highest weight in the benchmark index-Sensex.

One more advantage is its fund objective of selecting the companies from the top 200 by market capitalisation. Hence it displays transparency unlike other funds, where the objective may be investing in all stocks to get short-term gain and where risk-reward ratio is higher.

Also the fund has not selected real estate sector picks in the top ten stocks list, which has faced the major brunt and were one of the major underperformers. Considering all these factors the risk is relatively low and returns are above average. The fund size as on July 31, 2008 was Rs 2264 crore. It is managed by Prashant Jain.