HDFC Prudence
- Morningstar Category: Moderate Allocation
- Morningstar Category Benchmark: CRISIL Hybrid 35+65
- Fund Benchmark: 65% IISL Nifty 50, 35% Nifty Composite Debt Index
- Fund Manager: Prashant Jain
- Investment Style: Large Blend
- Morningstar Star Rating: 4 stars
- Morningstar Analyst Rating: Gold
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: March 2018
Being an allocation fund, the investment strategy entails making investments in equity and debt in the proportion of 75% and 25%.
Jain takes a departure from his trademark investment style while constructing the equity component of the portfolio. Unlike his other funds wherein large-cap bias is apparent, here he is willing to invest across market caps. For instance, in January 2013, 40% of assets were invested in small/mid-cap stocks. But, as their valuations surged, Jain shifted focus towards large caps, which as of February 2018 accounted for 57% of assets.
Though Jain tends to construct a relatively large portfolio (with 125-130 securities), he does take concentrated bets with the top-10 holdings accounting for 45%-50% of assets as against 35%-40% for the category. These, coupled with his willingness to back his convictions even in testing times, could expose the fund to above-average volatility compared with peers when faced with challenges.
Jain is more restrained while building the fixed-income portfolio. He doesn’t take credit bets in the conventional sense. For instance, as of February 2018, roughly 15% of assets were invested in AA+ and lower-rated securities. However, closer scrutiny reveals that most of the securities are issued by government agencies, indicating better creditworthiness than what the ratings might suggest.
Also, in line with his long-term approach, he had gradually reduced the fund’s average maturity from 18.18 years in January 2015 to the current 5.55 years and avoided making sporadic changes.
Under Prashant Jain (June 2003-January 2018), the fund has clocked annualized growth of 21%, thus outperforming the category average (17%) by a huge margin. It is also noteworthy that it outperformed all its category peers on the returns and risk-adjusted returns front during this period.
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HDFC Equity
- Morningstar Category: Large Cap
- Morningstar Category Benchmark: S&P BSE 100
- Fund Benchmark: IISL Nifty 500
- Fund Manager: Prashant Jain
- Investment Style: Large Growth
- Morningstar Star Rating: 4 stars
- Morningstar Analyst Rating: Gold
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: February 2018
Jain isn’t benchmark-conscious while constructing the portfolio. However, when he fails to uncover enough stocks that can generate alpha or believes that valuations are stretched, he will not shy away from aligning the portfolio with that of the IISL Nifty 500 index. For instance, in 2015, weights of sectors like utilities, communication services, and energy were loosely aligned with that of the benchmark index.
That is not to suggest that he is a closet indexer. The portfolio’s top pick, ICICI Bank, had a significant overweighting versus its weight in the index. Typical of his investment approach, Jain’s conviction stemmed from a combination of robust fundamentals, attractive valuations, and a potential economic turnaround.
The portfolio has an apparent large-cap bias which usually accounts for 75%-80% of assets. On the sector front, valuation concerns led him to have no exposure in the consumer defensive sector. The portfolio also displays a fair degree of consistency over longer periods; the fund’s turnover ratio (March 2016: 37%; March 2017: 23%) bears out Jain’s long-term investment horizon. Taking cash calls is not a part of his investment strategy.
Over a 5-year period ended December 2017, the fund’s allocation to cash/current assets has been around 1% vis-à-vis the category norm of 5%. He has adhered to this strategy even in the downturns of 2008, 2011, and 2013.
From June 2003-January 2018, the fund has clocked annualised growth of 25%, beating its benchmark index IISL Nifty 500 and all the category peers.
Access details on the fund and the brief analyst note here.
HDFC Top 200
- Morningstar Category: Large Cap
- Morningstar Category Benchmark: S&P BSE 100
- Fund Benchmark: S&P BSE 200
- Fund Manager: Prashant Jain
- Investment Style: Large Growth
- Morningstar Star Rating: 4 stars
- Morningstar Analyst Rating: Gold
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: February 2018
Though Jain is mindful of benchmark weights and invests almost all the assets in BSE 200 stocks, that is not to suggest that he is a closet indexer. He takes significant exposure versus the benchmark on stocks and sectors to deliver outperformance. For instance, his top picks such as HDFC Bank, ICICI Bank, and SBI are significantly overweight versus the index. Likewise, the financial services sector accounted for about 37% of assets versus the index (32%) as of December 2017.
Conversely, in market periods when he fails to uncover enough stocks that can generate alpha or believes that valuations are stretched, he will align the portfolio with the index.
Over time, Jain has shown a marked preference for public-sector companies. His conviction often stems from the economies of scale they enjoy and barriers to entry in the business in which they operate. Large caps dominate the portfolio.
On average, large caps have accounted for roughly 89% of assets versus the category norm of about 84% over the past five years. The fund’s turnover ratios (March 2016: 42%; March 2017: 31%) bear out a long-term orientation.
The portfolio corroborates Jain’s penchant for being fully invested at all times. For instance, in the 2011 downturn, when several managers increased allocation to cash (category average 7%), Jain stood by his policy of staying fully invested (roughly 3% in current assets).
From its migration date to HDFC (June 2003) to January 2018, the fund has clocked an annualised growth of 24%, beating its benchmark index BSE 200 and 97% of its category peers.
Access details on the fund and the brief analyst note here.
HDFC Growth
- Morningstar Category: Large Cap
- Morningstar Category Benchmark: S&P BSE 100
- Fund Benchmark: S&P BSE Sensex
- Fund Manager: Srinivas Rao Ravuri
- Investment Style: Large Growth
- Morningstar Star Rating: 4 stars
- Morningstar Analyst Rating: Silver
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: February 2018
Over the years, benchmark heavyweights such as Infosys, ICICI Bank, SBI, ITC, and ONGC have shared space with others such as Divis Laboratories, Solar Industries, and Crompton Greaves in the fund’s portfolio. The common thread has been that they made the grade on the manager’s stock-selection criteria--quality and reasonable valuations relative to growth prospects. He is currently focusing on construction and infrastructure stocks.
Srinivas Rao Ravuri constructs a predominantly large-cap portfolio. As of December 2017, the large-cap stocks in the portfolio accounted for roughly 86% of assets. Although Ravuri isn’t benchmark-conscious, he is mindful of the index’s sector weights, which he uses as reference points in constructing the portfolio. Then again, his convictions will lead him to significantly deviate from the index. For instance, as of December 2017, the basic-materials sector accounted for 14% with regard to the S&P BSE Sensex (4%). Stocks from the healthcare sector have consistently found favour with Ravuri, suggesting a somewhat structural bias in the portfolio.
Investments are made with a two- to three-year investment horizon, though it isn’t uncommon for stocks to feature in the portfolio for significantly longer periods.
The fund’s low turnover ratios (March 2015: 38%, March 2016: 21%, March 2017: 29%) bear out the manager’s willingness to be patient with his investments.
Under Srinivas Rao Ravuri (April 2006 to January 2017), the fund has risen 12% annualised, outperforming S&P BSE Sensex (8%) and the category average (9%).
Access details on the fund and the brief analyst note here.
