HDFC Top 200 Fund: Invest:: Business Line,

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Investors can buy units of HDFC Top 200 Fund given its impressive record in the past in delivering returns across market cycles for the long-term. The fund has managed to outperform its benchmark — BSE 200 — consistently, during one-, three- and five-year timeframes.

The level of outperformance vis-à-vis the BSE 200 has been to the tune of 5-10 percentage points during the past several years.

In the last 10 years, the fund has generated a compounded annual return of 31.1 per cent, placing it among the top few in the diversified category. During a five-year period, the fund has delivered compounded annual returns of 16.7 per cent.

Top 200 is a large-cap (greater than Rs 7,500-crore market capitalization) oriented fund and has participated in market rallies and also contained downslides better than its benchmark.

Except in the second half of 2006 and 2007, when its performance was dismal due to low exposure to the then ‘momentum' stocks in the real estate, construction, metals and capital goods sectors, it has an impeccable record.

In the market correction of 2008-09 and in the subsequent rally, the net asset value (NAV) of the fund slid much lower than the markets, and from March 2009, the fund had a spectacular rally.

With a good record for nearly 15 years, HDFC Top is suitable for the core portion of investors' portfolios across all levels of risk appetites. Given the volatile environment prevalent in the markets, investors can choose to take the systematic investment plan (SIP) route.

PORTFOLIO AND STRATEGY

The fund remains almost fully invested in equity across market cycles. This allows it to swiftly participate in market upticks.

During the last 2-3 years, Top 200 has consistently had the same set of sectors as its major bet. These include consumer non-durables, banks, pharma and software.

These sectors did not suffer the brunt of the market meltdown in 2008 and hence it had a spectacular rally subsequently, which allowed it to deliver 200 percent returns from the lows of March 2009 till the last peak in November 2010.

Although these sectors have corrected in recent months, thus making valuations more in line with the market, these may still be safer defensive bets, especially in the absence of too many opportunities in the broader market.

While these sectors generally accounted for 45-50 per cent of the portfolio, the fund also took the right calls on automobiles, another outperformer during the last couple of years. Capital goods, which figured prominently in the portfolio in 2008, was progressively reduced by the end of that year.

HDFC Top has around 60 stocks in its portfolio, which though high, may be necessary, given that it has more than Rs 10,000 crore under management. Individual stocks, except one or two, account for less than five per cent of the portfolio, which reduces the concentration risk.

The fund invests around 90 per cent of its portfolio in large-cap stocks, predominantly in the BSE 200 basket, and rarely ventures into risky mid-cap stocks