HDFC Index Fund - Sensex Plus: Buy :: Business Line

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To spice up returns, the fund allocates a small portion to non-Sensex stocks

Getting chary about the market run-up but want to stay invested, mostly in the relatively safer large bluechips? Go for HDFC Index Fund – Sensex Plus.

This fund invests 80-90 per cent of its corpus in Sensex stocks and the remaining in stocks outside the index.

So, while a large part of its portfolio is passively managed — with Sensex stocks holdings in about the same weightage that they have in the index — the fund is actively managed to the extent of 10-20 per cent.

This ‘plus’ 10-20 per cent portion has the potential to provide a lift to returns, making HDFC Index Fund – Sensex Plus different from other pure index funds, which generally track the benchmark closely. The upside potential manifested well in the bull-run last year.

The fund’s 36 per cent return beat the benchmark Sensex return by six percentage points.

Its annualised return since inception in 2002 is an impressive 22 per cent, ahead of the 16 per cent return of the Sensex.

Steady outperformer

Besides outperforming during upsides, the fund has also contained downsides well most times, except during the slump between February and August 2013. This performance places HDFC Index Fund – Sensex Plus in the top quartile of all index funds (though it is not strictly one) across time periods.

Its annual rolling return over the last five years has been better than that of the Sensex nearly 78 per cent of the time, a fair but not a great record. The rolling return outperformance has been lower over the past one and three years. Adept picks in the actively managed part of the portfolio have held the fund in good stead. In the past year, addition to mid-cap stock holdings such as Birla Corporation and Solar Industries India, which have doubled on the bourses, has boosted the fund’s performance.

So have non-Sensex large-caps such as BPCL. Exiting losers such as Jindal Steel and Power has helped too. Over the past three and five years, stocks such as Bayer CropScience and Solar Industries have been multi-baggers. The fund also did well to cut losses and get out of DLF, Reliance Communications and Reliance Infrastructure.

Currently, the fund is almost fully invested in equity, with about 14 per cent of the portfolio in stocks outside the Sensex. Small- and mid-caps form just 6 per cent of the corpus, thus keeping risk low if the tide turns.