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 Large Cap fund known for its strong performance during bull markets. It has successfully recovered from a long period of underperformance and returned to its previous high standards, by focusing on fundamentally strong large-cap stocks.

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 August 21, 2024
(Source: ACE MF, data collated by PersonalFN) 

HDFC Top 100 Fund, previously known as HDFC Top 200 Fund, is a leading scheme in the Large Cap Fund category, known for its strong performance during market rallies. Launched in September 1996, the fund has a solid track record of nearly 28 years, with a notable CAGR of around 19% since inception. Following changes in SEBI’s categorisation norms, HDFC Top 100 Fund now focuses on investing at least 80% of its assets in equity and equity-related instruments of the top 100 large-cap companies, instead of the top 200 as before. The fund gained significant popularity under its former manager, Mr Prashant Jain. Although Mr Jain left in July 2022, the fund’s performance remained stable under the new manager, Mr Rahul Baijal, who brings extensive experience and continues to use a growth-at-a-reasonable-price approach to stock selection.

The fund currently has a substantial AUM of Rs 37,081 crore, making it the fourth-largest scheme in its category. HDFC Top 100 Fund follows a buy-and-hold investment strategy, concentrating on high-conviction large-cap stocks and avoiding momentum-driven picks, even if this means experiencing periods of slower growth. Over the past five years, the fund has seen various ups and downs, including some phases of underperformance. In 2015 and between 2019 and 2020, it faced challenges due to higher exposure to stocks and themes, such as Consumption and PSU stocks, which were out of favour for quite a long time. However, the fund made a strong recovery when these sectors rebounded in the latter half of 2020.

Over the past five years, HDFC Top 100 Fund has achieved a CAGR of about 20.9%, outperforming the benchmark Nifty 100 – TRI, which has a CAGR of 19.9%. An investment of Rs 10,000 in HDFC Top 100 five years back would have now appreciated to Rs 25,795. While the fund has had periods of disappointing returns, it has generally delivered strong rewards over complete market cycles.

How has HDFC Top 100 Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Nippon India Large Cap Fund	31,801	34.22	24.24	26.18	18.40	16.85	13.91	0.38
HDFC Top 100 Fund	37,081	30.43	21.10	22.74	16.42	14.94	13.22	0.34
ICICI Pru Bluechip Fund	62,717	31.24	19.97	21.99	18.06	16.16	12.58	0.34
JM Large Cap Fund	331	34.96	20.80	20.34	17.05	14.37	13.77	0.33
Invesco India Largecap Fund	1,203	30.58	16.85	19.88	17.24	15.45	14.32	0.26
Tata Large Cap Fund	2,437	27.24	16.87	19.85	16.45	14.44	13.72	0.27
Baroda BNP Paribas Large Cap Fund	2,285	30.83	18.88	19.73	18.58	16.00	13.15	0.32
Edelweiss Large Cap Fund	1,043	28.26	18.49	19.61	17.71	16.12	13.07	0.29
Mahindra Manulife Large Cap Fund	557	26.47	15.88	19.09	18.65	—	13.45	0.27
Bank of India Bluechip Fund	188	34.23	17.91	18.86	—	—	14.90	0.23
NIFTY 100 – TRI		23.53	14.42	17.38	15.63	14.63	14.05	0.23

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of August 21, 2024
(Source: ACE MF, data collated by PersonalFN)
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.

Despite HDFC Top 100 Fund’s strong long-term track record, its prolonged underperformance during 2015 and later in 2019-20 led some investors to question its ability to recover. During these periods, the fund’s high-conviction strategies took longer to show results, causing it to underperform compared to the benchmark and many peers. However, HDFC Top 100 Fund has recently made a notable comeback.

Over the last 1-year, 2-year, and 3-year periods, it has outperformed the benchmark Nifty 100 – TRI and the category average by about 3 to 7 percentage points on a rolling return basis. This recent improvement has significantly boosted its long-term returns. The fund now ranks among the top quartile performers in its category across various time frames and has maintained a strong position relative to the benchmark.

HDFC Top 100 Fund’s Standard Deviation, which measures volatility, is in line with the category average and slightly lower than the benchmark. In terms of risk-adjusted returns, as shown by the Sharpe ratio, the fund has outperformed most of its peers and is well ahead of the benchmark.

[Read: Do Large Cap Funds Make More Sense in An Overheated Equity Market?]

What is the investment strategy of HDFC Top 100 Fund?

Classified as a Large Cap fund, HDFC Top 100 Fund maintains a minimum exposure of 80% in large-cap stocks (top 100 companies by market capitalization). The fund has the flexibility to invest across sectors and economic variables. The 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 a bottom-up approach to pick stocks and blends it with the top-down approach to analyse macro trends. For the bottom-up stock selection process, the fund pays attention to the company’s positioning and trends in business, sector, and valuation cycles.

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 medium to long-term view. Accordingly, HDFC Top 100 Fund’s portfolio turnover ratio is usually around 15-20%.

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

Holding in (%) as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

HDFC Top 100 Fund typically maintains a well-diversified portfolio of about 45 to 50 stocks. As of July 31, 2024, the fund held 48 stocks, with significant exposure to key index heavyweights. The top 10 stocks made up 58% of the fund’s assets. Among these top holdings, the fund had notable investments in major large-cap companies such as ICICI Bank, HDFC Bank, NTPC, L&T, Reliance Industries, and Infosys. Many of these stocks have been part of the fund’s portfolio for several years.

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

HDFC Top 100 Fund’s portfolio is notably focused on the Banking & Finance sector, which holds about 32.4% of its assets. The fund also has significant investments in Consumption and Infotech, which together make up 19.6% of its assets. Other key sectors in the portfolio include Engineering, Power, Pharma, Auto, Petroleum, and Telecom. Overall, the portfolio maintains a balanced allocation across cyclical, defensive, and sensitive sectors.

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

With its significant performance recovery, HDFC Top 100 Fund has delivered impressive risk-adjusted returns, as shown by its Sharpe ratio. The fund’s buy-and-hold approach helps it maximise the potential of its high-conviction stock and sector selections over the long term. By focusing on well-established businesses and market leaders, it provides stability and steady growth to its portfolio as well as investors. Although it may not shine during bear markets, the fund stands out during recovery and bull phases, proving its ability to reward investors handsomely over complete market cycles.

HDFC Top 100 Fund’s high-conviction strategy might lead to short-term underperformance during phases when its prominent investment bets are out of favour or during momentum-driven market rallies. However, its commitment to a well-diversified portfolio of fundamentally strong stocks positions it for solid long-term gains. It has a proven track record of delivering reasonable risk-adjusted returns over extended periods.

HDFC Top 100 Fund is suitable for investors looking for a high-conviction driven Large Cap Fund that focuses on well-established businesses, and have a long-term investment horizon of at least 3-5 years.

Watch this video to find out the investment strategy to follow with Sensex at 80,000:

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here