Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds. In this issue, we have analysed HDFC Focused 30 Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.
HDFC Focused 30 Fund is a process-driven Focused Fund that is renowned for its diligent risk management techniques. It has made a remarkable comeback after a prolonged period of underperformance.
Growth of Rs 10,000 if invested in HDFC Focused 30 Fund 5 years ago
Past performance is not an indicator of future returns
June 20, 2023
(Source: ACE MF)
HDFC Focused 30 Fund is the former HDFC Core & Satellite Fund, which was originally launched in September 2004. Categorised as a Focused Fund, its objective is to invest in a portfolio consisting of 30 high-conviction stocks that have the potential to outperform the market over the medium to long term. It aims to identify and invest in quality stocks that are available at reasonable valuations. HDFC Focused 30 Fund experienced its fair share of challenges throughout its 18-year journey. Notably, HDFC Focused 30 Fund encountered an extended period of underperformance during the bull phase of 2016 to 2020, primarily due to higher allocation to out-of-favour stocks like PSUs. Additionally, during the market crash of 2020, HDFC Focused 30 Fund faced difficulties due to its underweight position in sectors such as Pharma and IT, which performed better during that period. Nevertheless, HDFC Focused 30 Fund witnessed a turnaround phase starting from the latter half of 2020, when the market began its upward trend, reaping the benefits of its investment strategies. Over the last five years, HDFC Focused 30 Fund has delivered a decent performance, and achieved a compound annual growth rate (CAGR) of 14.5%, which is higher than the 13.1% CAGR clocked by its benchmark Nifty 500 – TRI. An investment of Rs 10,000 made in HDFC Focused 30 Fund five years ago would now be valued at Rs 19,656, compared to a valuation of Rs 18,474 for a simultaneous investment in the benchmark index.
HDFC Focused 30 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 |
HDFC Focused 30 Fund | 4,783 | 35.47 | 23.78 | 33.54 | 14.46 | 14.28 | 16.05 | 0.48 |
Nippon India Focused Equity Fund | 6,359 | 25.27 | 12.33 | 29.61 | 13.86 | 14.81 | 18.05 | 0.39 |
Quant Focused Fund | 267 | 27.78 | 11.93 | 29.46 | 15.37 | 15.22 | 16.91 | 0.37 |
360 ONE Focused Equity Fund | 3,830 | 34.38 | 14.65 | 28.95 | 19.20 | 18.58 | 15.93 | 0.41 |
Franklin India Focused Equity Fund | 8,586 | 30.18 | 14.16 | 28.88 | 15.37 | 15.27 | 18.24 | 0.37 |
ICICI Pru Focused Equity Fund | 4,294 | 30.22 | 15.81 | 27.46 | 15.19 | 14.70 | 15.04 | 0.40 |
Tata Focused Equity Fund | 1,298 | 26.86 | 12.60 | 27.05 | — | — | 15.71 | 0.39 |
Mirae Asset Focused Fund | 8,995 | 19.17 | 8.78 | 25.58 | — | — | 16.14 | 0.38 |
Sundaram Focused Fund | 836 | 29.25 | 10.85 | 25.16 | 15.07 | 15.18 | 16.11 | 0.34 |
Kotak Focused Equity Fund | 2,612 | 24.68 | 11.21 | 25.14 | — | — | 15.44 | 0.37 |
NIFTY 500 – TRI | 26.30 | 11.17 | 25.79 | 13.05 | 14.30 | 15.86 | 0.37 |
The securities quoted are for illustration only and are not recommendatory
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 June 20, 2023
(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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
Following a prolonged period of underperformance, HDFC Focused 30 Fund has exhibited exceptional gains in the last few years. HDFC Focused 30 Fund has outpaced the benchmark by an impressive margin of about 8-12 percentage points over the past 1-year, 2-year, and 3-year periods, positioning itself among the top quartile performers in its category. The substantial improvement in the performance of HDFC Focused 30 Fund in recent years has improved its track record over longer time frames of 5 years and 7 years, where it has surpassed many of its prominent peers and the benchmark.
While the fund’s volatility remains competitive with the category average and the benchmark, its risk-reward parameters have significantly improved with the recent rebound in performance. This improvement is reflected in the fund’s Sharpe Ratio, which is currently among the best in the category.
Investment strategy of HDFC Focused 30 Fund
As a Focused Fund, HDFC Focused 30 Fund is mandated to invest a minimum of 65% of its assets in equities, holding a maximum of 30 stocks. Accordingly, HDFC Focused 30 Fund aims to create a concentrated portfolio of high conviction ideas, backed by extensive research. It manages risk by holding a diversified portfolio spread across market caps and sectors. HDFC Focused 30 Fund takes a benchmark-agnostic approach and determines its overweight/underweight positions based on market outlook. The fund follows a bottom-up approach to identify high-quality growth-oriented stocks for the long term.
While selecting stocks for the portfolio, HDFC Focused 30 Fund prioritises fundamentally strong companies having competitive advantage, the ability to capitalise on opportunities while managing risks, as well as track record of corporate governance, ESG sensitivity and transparency. It emphasises on valuation to provide a reasonable margin of safety. While assessing the valuation HDFC Focused 30 Fund prefers to adopt a holistic approach instead of solely relying on traditional parameters like P/E and P/B. HDFC Focused 30 Fund follows a buy-and-approach to select stocks with a long-term view. The fund’s turnover typically ranges between 10% to 50%, signifying a low level of portfolio churning.
Top portfolio holdings in HDFC Focused 30 Fund
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Holding in (%) as of May 31, 2023
(Source: ACE MF)
HDFC Focused 30 Fund holds its equity exposure across market caps but with a notable inclination towards large cap stocks. As of May 31, 2023, HDFC Focused 30 Fund held 27 stocks in its portfolio with the top 10 stocks accounting for nearly 50% of its assets. Popular large cap names like ICICI Bank, HDFC Bank, Bharti Airtel, Mahindra & Mahindra, and SBI currently form part of HDFC Focused 30 Fund’s top holdings. Many of these stocks have been among the core holdings in the portfolio for quite a long time. HDFC Focused 30 Fund has kept itself away from certain popular high-growth stocks due to expensive valuations.
In the last two years, HDFC Focused 30 Fund has benefited immensely from its prominent exposure to stocks like ICICI Bank, SBI, L&T, Hindustan Aeronautics, NTPC, Bharti Airtel, Axis Bank, and HDFC Bank, among others. It has also benefitted from Cipla, Dr Reddy’s Laboratories, Escorts Kubota, Mahindra & Mahindra, Apollo Hospitals Enterprise, Bank of Baroda, HCL Technologies, Bajaj Auto, Bharat Dynamics, Tech Mahindra, ONGC, and Bosch that have risen significantly in value in the past few months.
HDFC Focused 30 Fund favours Cyclical sectors along with strategic allocation towards Defensives and Sensitives. Around one-third of HDFC Focused 30 Fund’s portfolio is inclined towards financial services which includes Banking at 26.4% and Finance at 7.1%. Infotech, Auto, Engineering, Pharma, Telecom, and Power stocks follow with an allocation in the range of 4-10% of its assets. HDFC Focused 30 Fund also holds diversification in Healthcare, Oil & Gas, Construction, Auto Ancillaries, Petroleum, and Logistics.
Suitability
HDFC Focused 30 Fund has established a commendable long-term performance track record. Even though HDFC Focused 30 Fund’s underperformance during 2016 to 2019 was a cause for concern for its investors, the fund has made a strong comeback in recent years, thus significantly improving its overall performance track record. The fund has the ability to thrive over complete market cycle.
HDFC Focused 30 Fund emphasises maintaining a well-diversified portfolio comprising fundamentally sound, high-quality stocks and holds them with a long-term view to derive its full potential even though the bets may not pay off immediately. By focusing on quality stocks available at reasonable valuations, HDFC Focused 30 Fund minimises the risks by incorporating a better margin of safety.
It is important to note that the fund management team of HDFC Focused 30 Fund has witnessed a higher turnover in recent years. Nevertheless, HDFC Focused 30 Fund has always had experienced fund managers at helm. Its current fund manager, Ms Roshi Jain, has an overall experience of 17 years and is well capable of taking the scheme to new highs.
HDFC Focused 30 Fund is suitable for investors seeking a well-diversified equity fund with a focus on high conviction bets.
Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This article first appeared on PersonalFN here