Flexi Cap Mutual Funds are equity-oriented mutual funds that invest a minimum of 65% of their assets in equity and equity-oriented instruments of companies across the market cap range without any upper or lower limit.

Depending on market conditions, liquidity conditions, and valuations, the fund manager of a Flexi-cap Fund can manoeuvre among large-caps, mid-caps, and small-cap stocks. This gives fund managers greater scope to identify alpha-generating opportunities from a large universe of stocks which can reward investors with superior risk-adjusted returns over the long term.

[Read: Best Flexi Cap Mutual Funds to Invest in 2023]

HDFC Flexi Cap Fund is one of the most popular Flexi Cap Funds that has bounced by superior returns in the last couple of years and rewarded investors for their patience.

Graph 1: Growth of Rs 10,000 if invested in HDFC Flexi Cap Fund 5 years ago

Past performance is not an indicator of future returns
Data as on January 18, 2022
(Source: ACE MF) 

HDFC Flexi Cap Fund, erstwhile HDFC Equity Fund, is one of the largest schemes in the Flexi Cap Fund category. Launched in January 1995, the fund was earlier categorised as a Multi Cap Fund but was reclassified as Flexi Cap Fund in January 2021 to align with SEBI’s new definition for the category. Notably, the scheme always followed a dynamic investment strategy to invest across market caps and therefore, the change in category did not have any impact on the investment philosophy of the scheme. The fund follows a value-oriented investment strategy and is averse to investing in momentum-driven bets, even if it leads to short-term underperformance. HDFC Flexi Cap Fund witnessed a rough phase between in 2015-16 and then between 2019 and 2020 due to higher exposure to certain bets, that moved out of favour during this period. Nonetheless, the schemes displayed turnaround growth as value as an investment strategy outshined growth-oriented strategy from the latter half of 2020. It now stands among the top quartile performers in the category across time frames. In the last five years, HDFC Flexi Cap Fund has grown at a CAGR of 12.4% compared to a growth of 11.2% in its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in HDFC Flexi Cap Fund five years back would have now appreciated to Rs 17,967 compared to a valuation of Rs 16,987 for a simultaneous investment in its benchmark.

Table: HDFC Flexi Cap Fund’s performance vis-á-vis category peers

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	920	8.59	31.90	37.40	19.03	22.19	25.31	0.35
PGIM India Flexi Cap Fund	5,284	-7.71	16.25	22.40	14.98	17.40	23.75	0.25
Parag Parikh Flexi Cap Fund	28,248	-4.88	17.78	21.91	16.08	18.25	20.53	0.25
HDFC Flexi Cap Fund	32,155	13.41	25.32	20.18	12.43	17.35	25.53	0.20
Franklin India Flexi Cap Fund	10,431	1.37	18.77	19.41	11.55	15.00	24.23	0.20
Union Flexi Cap Fund	1,361	-2.93	16.26	17.65	12.68	14.99	21.91	0.20
Canara Rob Flexi Cap Fund	8,730	-3.46	14.90	17.19	13.62	16.28	20.64	0.20
JM Flexicap Fund	250	3.31	19.28	16.96	12.88	17.84	22.50	0.18
Edelweiss Flexi Cap Fund	1,066	-0.05	17.32	16.82	11.58	16.47	22.34	0.18
IDBI Flexi Cap Fund	369	-3.37	17.05	16.72	11.46	14.07	21.57	0.18
NIFTY 500 – TRI		0.50	15.90	16.43	11.17	15.43	23.30	0.17

Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on January 18, 2022
(Source: ACE MF)
*Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator of future returns. The percentage returns shown are only for indicative purposes.

HDFC Flexi Cap Fund has registered superior long term performance record. In the last one year, HDFC Flexi Cap Fund delivered absolute return 13.4%, thereby outperforming the benchmark and the category average by a remarkable margin of 13 and 15.5 percentage points, respectively. The superior performance in recent years has significantly improved its long-term returns. The fund now stands among the top quartile performers in the category across time frames and has also generated noticeable alpha over the benchmark.

The bouts of underperformance and ensuing sharp uptick in returns has resulted in higher volatility compared to the benchmark and its peers. Nonetheless, HDFC Flexi Cap Fund has compensated its investors well by recording higher risk-adjusted returns, as denoted by its Sharpe ratio.

Investment strategy of HDFC Flexi Cap Fund

Categorised as a Flexi Cap Fund, HDFC Flexi Cap Fund has the ability to dynamically allocate assets across market caps. Accordingly, it aims to create a diversified portfolio spread across major industries, economic sectors, and market capitalization that offer an acceptable risk-reward balance. The scheme predominantly invests in companies that:

a) Are likely to achieve above average growth

b) Enjoy distinct competitive advantages, and

c) Have superior financial strength

HDFC Flexi Cap Fund maintains a large-cap biased portfolio wherein it invests 70-80% of its assets, with the remaining in mid-cap and small-cap stocks. The fund has high conviction in most of its stocks and holds them with a long term view. It has recorded a low turnover ratio of 20-40% in the last one year.

Graph 2: Top portfolio holdings in HDFC Flexi Cap Fund

Holding in (%) as of December 31, 2022
(Source: ACE MF) 

HDFC Flexi Cap Fund usually holds around 45-55 stocks spread across market caps and sectors. As of December 31, 2022, the fund held 48 stocks with the top 10 stocks accounting for 51.3% of its assets. Popular large-cap names such as ICICI Bank, SBI, HDFC Bank, and Infosys currently form part of its top holdings. The fund has limited exposure to individual stocks in the mid-cap and small-cap segment to under 2%.

In the last two years, HDFC Flexi Cap Fund benefitted the most from its holdings in SBI, ICICI Bank, L&T, ITC, Coal India, NTPC, and Bank of Baroda. Axis Bank, Hindustan Aeronautics, Bharat Dynamics, Bharti Airtel, and Infosys were among the other contributors to its gains.

In terms of sectors, HDFC Flexi Cap Fund’s portfolio is skewed towards Banking & Finance stocks that collectively form 36.8% of its assets. It holds substantial allocation in infotech and Engineering that form another 20.9% of its assets. The fund also holds diversification to Power, Telecom, Auto, Petroleum, Pharma, and Oil & Gas, among others.

Suitability

HDFC Flexi Cap Fund has generated superior long term returns and has found place among the top performers in the category. While HDFC Flexi Cap Fund is not a great bear market performer, its return profile surely stands out during bull phases. Although the fund may witness underperformance in the short run due to its value-oriented approach, it has the potential to bounce back and generate superior over complete market cycles. The fund has a reliable track record of delivering reasonable risk-adjusted returns over longer time periods.

HDFC Flexi Cap Fund follows sound investment process and has an experienced fund manager at the helm. Further, it holds a high conviction and well-diversified portfolio of stocks across industries, which has proved to be rewarding for investors in due course.

HDFC Flexi Cap Fund is suitable for investors long term investors looking to benefit from diversification and flexible investment approach.

This article first appeared on PersonalFN here