Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed HDFC Top 100 Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

HDFC Top 100 Fund is a popular Large Cap fund that has successfully risen from a prolonged period of underperformance to reclaim its former glory, ultimately rewarding patient investors. With a focus on fundamentally sound large-cap stocks, it is positioned to harness superior long-term growth opportunities.

What is the growth of Rs 10,000 invested in HDFC Top 100 Fund five years ago?

Past performance is not an indicator of future returns
Data as of December 20, 2023
(Source: ACE MF, data collated by PersonalFN) 

HDFC Top 100 Fund, the erstwhile HDFC Top 200 Fund, is a well-known scheme in the Large Cap Fund category. Launched way back in September 1996, it has an established track record of over 25 years to its credit, achieving a commendable CAGR of around 19% since inception. Following a change in SEBI’s categorisation norms, HDFC Top 100 Fund is now mandated to invest a minimum of 80% of its assets in equity & equity-related instruments of the top 100 large-cap companies, as against its earlier mandate of selecting stocks from the universe of top 200 companies.

HDFC Top 100 Fund gained popularity, particularly under the stewardship of its former fund manager, Mr Prashant Jain. However, the exit of Prashant Jain in July 2022 did not have any significant impact on its performance. The fund currently has a massive AUM of Rs 27,687 crore. HDFC Top 100 Fund adopts a buy-and-hold investment strategy, focusing on high-conviction bets and avoiding momentum-driven bets, even if it results in prolonged periods of subdued growth.

[Read: Are Large Cap Mutual Funds Falling Out of Favour?]

Over the past 5 years, HDFC Top 100 Fund has experienced various ups and downs in its performance, including phases of underperformance. Challenges arose in 2015 and between 2019 and 2020 due to higher exposure to certain stocks and themes, such as Consumption and PSU stocks, which fell out of favour during these periods. Nevertheless, the fund exhibited a turnaround as these stocks rebounded in the latter half of 2020.

HDFC Top 100 Fund currently ranks among the top performers in its category across different time frames. During the last 5-year period, the fund has delivered a CAGR of approximately 16%, surpassing the 15% CAGR of the benchmark Nifty 100 – TRI. Although the fund has occasionally disappointed its investors with low returns, it has been able to reward them over a complete market cycle.

How has HDFC Top 100 Fund performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Nippon India Large Cap Fund	18,072	27.31	23.07	25.13	17.23	17.72	14.84	0.38
HDFC Top 100 Fund	27,687	25.25	21.38	22.48	16.04	16.04	14.54	0.34
ICICI Pru Bluechip Fund	44,425	22.75	18.10	20.83	16.82	16.87	13.21	0.33
Tata Large Cap Fund	1,699	20.06	15.26	20.20	15.85	15.34	14.52	0.29
Invesco India Largecap Fund	837	23.71	13.99	19.25	16.39	16.32	14.65	0.27
Mahindra Manulife Large Cap Fund	290	18.05	13.80	18.65	—	—	14.05	0.28
Edelweiss Large Cap Fund	621	21.90	16.65	18.35	16.93	17.31	13.48	0.28
JM Large Cap Fund	61	24.55	17.29	18.22	15.56	14.61	12.97	0.27
Kotak Bluechip Fund	6,870	19.00	14.23	18.04	16.88	16.30	13.76	0.27
Sundaram Large Cap Fund	3,142	17.65	14.79	18.00	15.82	17.06	13.51	0.27
NIFTY 100 – TRI		15.66	13.61	16.57	14.98	15.80	14.39	0.23

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 of December 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.

While HDFC Top 100 Fund has an encouraging long-term track record, the prolonged underperformance witnessed in 2015 and later in 2019-20 raised concerns among investors, leading to doubts about the fund’s ability to regain its former glory. Notably, some of the fund manager’s high-conviction ideas took an extended time to deliver the desired results, resulting in significant underperformance compared to the benchmark and many peers.

However, HDFC Top 100 Fund registered a turnaround growth in the last couple of years. Over the past 2- year and 3-year periods, it has outperformed the benchmark and the category average by a CAGR of around 5 to 7.5 percentage points. This recent superior performance has notably enhanced its long-term returns. The fund now stands among the top quartile performers in the category across various time frames and has generated decent alpha over the benchmark.

While HDFC Top 100 Fund carries a higher Standard Deviation indicating excess volatility compared to its category peers, it aligns closely with the benchmark. In terms of risk-adjusted returns, as indicated by the Sharpe ratio, HDFC Top 100 Fund has surpassed the majority of its peers and the benchmark.

What is the investment strategy of HDFC Top 100 Fund?

Being a Large Cap fund, HDFC Top 100 Fund maintains a minimum exposure of 80% in large-cap stocks (top 100 companies by market capitalisation). The fund has the flexibility to invest across sectors and economic variables. HDFC Top 100 Fund follows a blend of growth and value investment to deliver optimal returns at a reasonable risk level.

While creating the portfolio, the fund manager adopts the bottom-up approach to pick stocks and blends it with the top-down approach to analyse macro trends. The stock selection involves a 3-pronged framework that analyses each stock on key parameters such as the strength of the business model, quality and experience of the management team, and financial metrics (RoE, RoCE, cash flows, balance sheet, etc.).

The fund has high conviction in most of its stocks and holds them with a long-term view. Accordingly, HDFC Top 100 Fund’s portfolio turnover ratio is usually around 15%.

What are the top portfolio holdings in HDFC Top 100 Fund?

Holding in (%) as of November 30, 2023
(Source: ACE MF, data collated by PersonalFN) 

HDFC Top 100 Fund usually holds a well-diversified portfolio of about 50 to 60 stocks. As of November 30, 2023, the fund held 49 stocks in its portfolio, with higher exposure to selected index heavyweights. The top 10 stocks comprised 56% of its assets. Among its top holdings, the fund held higher exposure to ICICI Bank, HDFC Bank, Reliance Industries, NTPC, and Infosys. Many of the stocks in its top holding have been part of the fund’s portfolio for multi years now.

HDFC Top 100 Fund’s high conviction on its prominent bets like Power Finance Corporation, Coal India, NTPC, ITC, L&T, ICICI Bank turned out to be highly rewarding in the last couple of years. The fund also benefitted from its holdings in stocks such as Axis Bank, Sun Pharma, SBI, Hindustan Aeronautics, Tata Motors, Lupin, Mahindra & Mahindra, Bharti Airtel, among others.

In terms of sectoral bets, HDFC Top 100 Fund’s portfolio is overweight on the Banking & Finance sector where it has currently allocated about 35.8% of its assets. The fund also held significant exposure in Consumption and Infotech that form another 19% of its assets. Petroleum, Pharma, Engineering, Power, Auto, Telecom, and Mining are among the other prominent sectors in HDFC Top 100 Fund’s portfolio. Its portfolio has a well-balanced allocation to cyclical, defensive, and sensitive sectors.

Is HDFC Top 100 Fund suitable for my investment goals and risk tolerance?

HDFC Top 100 Fund has shown a remarkable turnaround in performance over the last few years, and has emerged as one of the top performers in the Large Cap Fund category. While it may not excel in bear markets, it distinctively stands out during recovery and bull phases, demonstrating its capability to handsomely reward investors over complete market cycles.

With its significant recovery in performance, HDFC Top 100 Fund has delivered impressive risk-adjusted returns, as evidenced by its Sharpe ratios. Embracing a buy-and-hold approach allows the fund to unlock the full potential of its high-conviction stock and sector selections over the long term. Its emphasis on well-established businesses and market leaders provides stability and consistent growth to the portfolio.

HDFC Top 100 Fund’s high-conviction strategy might lead to short-term underperformance during phases where its prominent bets fall out of favour or in momentum-driven market rallies. Despite this, the focus on building a well-diversified portfolio of fundamentally sound stocks positions it for decent long-term gains. Importantly, the fund has a proven track record of delivering reasonable risk-adjusted returns over extended time periods.

HDFC Top 100 Fund is suitable for investors seeking a high conviction-driven fund with a long-term investment horizon of at least 5 years.

Watch this video to find out PersonalFN’s list of the best Large Cap Funds for 2024:

 

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