HDFC Equity Fund (HEF) is among the leading diversified equity funds in the country today. The fund has an impressive track record and its portfolio is always a subject of interest within the investing community.
We had done a small analysis of its portfolios over the last 5 months to get an idea of what is on the fund manager's mind.
To be sure, HEF pursues an aggressive investment strategy. It has a concentrated portfolio of about 25 stocks with a good mix of large cap and mid caps. Each sector has no more than 2-3 stocks. The fund has been consistent in pursuing this strategy and there has been no dilution on this front.
Consistency in stock selection
| COMPANY | JAN 2004 | FEB 2004 | MAR 2004 | APR 2004 | MAY 2004 |
| GRASIM INDUSTRIES | 9.8% | 9.5% | 9.2% | 9.6% | 9.8% |
| SATYAM COMPUTERS | 6.1% | 6.9% | 5.9% | 7.7% | 9.5% |
| SBI | 9.1% | 9.0% | 9.3% | 9.5% | 7.5% |
| BHEL | 6.3% | 7.1% | 6.4% | 4.1% | 7.2% |
| MAHINDRA & MAHINDRA | - | 5.9% | 5.6% | 5.7% | 5.4% |
| RELIANCE INDUSTRIES | 5.7% | 4.5% | 5.1% | 4.6% | 5.2% |
| ZEE TELEFILMS | 4.5% | 4.8% | 4.5% | 4.4% | 4.8% |
| MARUTI UDYOG | 6.6% | 5.1% | 4.3% | 4.3% | 4.3% |
| BHARTI |
2.7% | 2.9% | 3.0% | - | 4.2% |
| AMTEK AUTO | - | - | - | 3.2% | 3.9% |
As is evident, HEF is consistent in its stock picks with the top 10 stocks being a part of its core portfolio over the last 5 months. The top 10 stocks in its portfolio (as on May 31, 2004) accounted for 61.8% of net assets. This is on the higher side for a 'diversified' equity fund.
We maintain that a diversified equity fund should have not more than 40% of its assets in the top 10 stocks. This is a level that global 'diversified' equity funds maintain. We plan to address this issue in another article at a later date.
The lesson for the investor from this is that he should look out for funds that have a consistent bunch of stocks that can be identified as the core portfolio.
This is as opposed to having a portfolio that changes dramatically every few months, which would imply that the fund has no defined character and is more a trading vehicle rather than an investment avenue.