Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed HDFC Hybrid Equity Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.
HDFC Hybrid Equity Fund is a cautiously managed Aggressive Hybrid Fund known for its process-driven risk mitigation techniques. It has a strong track record of making decent returns by emphasising on selecting high-quality stocks and bonds for its portfolio.
What is the growth of Rs 10,000 invested in HDFC Hybrid Equity Fund five years ago?
Past performance is not an indicator of future returns
Data as of September 30, 2024
(Source: ACE MF, data collated by PersonalFN)
Launched in April 2005, HDFC Hybrid Equity Fund was formerly known as HDFC Balanced Fund. Currently, it is one of the most popular Aggressive Hybrid Funds, with a total corpus of Rs 24,645 crore as of August 2024. Categorised as an Aggressive Hybrid Fund, HDFC Hybrid Equity Fund is required to primarily invest (between 65% to 80% of its assets) in equity and the remaining in debt. The fund holds a mix of equity and debt in its portfolio and employs sound risk management processes to deal with the excess market volatility.
The fund is known for its ability to capitalise well on market rallies and generate superior risk-adjusted returns for its investors. Notably, the fund struggled to keep pace with the benchmark and many of its peers during the 2020 market correction which affected its near-term performance. Nonetheless, with the subsequent recovery and rally witnessed in the equity market, HDFC Hybrid Equity Fund’s performance has significantly improved in recent years.
Over the last five years, HDFC Hybrid Equity Fund has delivered a decent performance, growing at a CAGR of 17.7%, thereby managing to generate returns slightly better than the benchmark CRISIL Hybrid 35+65 – Aggressive index. An investment of Rs 10,000 invested in HDFC Hybrid Equity Fund 5 years back would have appreciated to Rs 22,627. A simultaneous investment in the benchmark index would now have been valued at Rs 21,806, growing at 16.9% CAGR.
How has HDFC Hybrid Equity Fund performed on a rolling return basis?
Scheme Name | Corpus (Cr.) | 1 Year | 2 Year | 3 Year | 5 Year | 7 Year | Std Dev | Sharpe |
ICICI Pru Equity & Debt Fund | 40,095 | 33.82 | 23.08 | 26.12 | 21.39 | 17.52 | 10.04 | 0.47 |
UTI Aggressive Hybrid Fund | 6,189 | 29.30 | 19.63 | 19.77 | 17.14 | 13.50 | 10.40 | 0.35 |
Kotak Equity Hybrid Fund | 6,510 | 26.53 | 17.97 | 18.56 | 19.06 | 14.95 | 10.15 | 0.35 |
HDFC Hybrid Equity Fund | 24,645 | 20.25 | 16.17 | 16.88 | 15.81 | 13.54 | 9.91 | 0.26 |
Mirae Asset Aggressive Hybrid Fund | 9,381 | 23.67 | 15.60 | 15.68 | 16.16 | 14.75 | 10.37 | 0.25 |
HSBC Aggressive Hybrid Fund | 5,856 | 28.96 | 17.06 | 15.46 | 14.88 | 12.28 | 11.58 | 0.24 |
Canara Rob Equity Hybrid Fund | 11,095 | 24.23 | 15.60 | 15.33 | 16.77 | 14.67 | 10.35 | 0.24 |
DSP Equity & Bond Fund | 10,323 | 26.80 | 16.41 | 15.25 | 16.74 | 13.79 | 11.64 | 0.22 |
Aditya Birla SL Equity Hybrid '95 Fund | 7,983 | 24.93 | 13.75 | 14.40 | 13.67 | 11.20 | 10.59 | 0.19 |
SBI Equity Hybrid Fund | 73,405 | 21.73 | 13.25 | 14.33 | 14.94 | 13.56 | 9.45 | 0.21 |
CRISIL Hybrid 35+65 – Aggressive Index | 20.95 | 13.62 | 14.28 | 14.58 | 13.00 | 9.38 | 0.24 |
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 September 30, 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.
HDFC Hybrid Equity Fund has a history of performing better than the CRISIL Hybrid 35+65 Aggressive index and outpacing it by quite a noticeable margin. However, the fund’s performance suffered during the sharp market drop in early 2020 wherein it trailed the benchmark and many of its category peers. Nonetheless, HDFC Hybrid Equity Fund bounced back strongly when the market started trending upward later in 2020, which has helped improve its returns over the medium to long-term time frames. On a rolling return basis, in the last 2-year and 3-year periods, the fund has done significantly better than the CRISIL Hybrid 35+65 Aggressive index, but has trailed some of its peers. Over the longer 5-year and 7-year period too its performance has been reasonable relative to the benchmark.
In terms of risk-reward, although the volatility registered by HDFC Hybrid Equity Fund is lower than the category average, it is marginally higher than the benchmark. With the recent outperformance, the fund has shown significant improvement in its risk-adjusted returns, as denoted by the Sharpe Ratio of 0.26, which is higher than the benchmark and several prominent peers in the category.
What is the investment strategy of HDFC Hybrid Equity Fund?
Being an Aggressive Hybrid Fund, HDFC Hybrid Equity Fund is mandated to invest 65% to 80% of its assets in equities and 20% to 35% in debt instruments. The fund tends to allocate around 65-70% of its assets in equities along with 20-30% in debt and the balance in cash. When picking stocks, the fund manager looks to invest in businesses with reasonable growth prospects, sound financial strength, sustainable business models, and that are available at a reasonable valuation.
HDFC Hybrid Equity Fund follows the bottom-up approach to identify high-quality growth-oriented stocks for the long term. While the fund has the flexibility to invest the equity portion of its portfolio across market capitalisation, it maintains higher allocation to large caps along with significant diversification to mid and small caps. It usually holds around 35-40 stocks in the portfolio and follows a ‘buy-and-hold’ strategy, where the equity portion of the portfolio is not churned often. This highlights the high conviction the fund manager has in its holdings.
Under debt, the fund holds the flexibility to invest across duration and credit profiles. The debt portion of the portfolio is spread across a range of debt instruments, with a preference towards high-rated instruments and G-Secs. Investments in debt securities are guided by credit quality, liquidity, interest rates, and their outlook.
What are the top portfolio holdings in HDFC Hybrid Equity Fund?
Holding in (%) as of August 31, 2024
(Source: ACE MF, data collated by PersonalFN)
HDFC Hybrid Equity Fund allocates around 65-70% of its assets towards equities and around 20-30% towards debt instruments. The fund holds its equity exposure across market caps but with a large cap bias. As of August 31, 2024, the fund held 39 stocks in its portfolio with the top 10 stocks accounting for 42.7% of its assets. Top bluechip names such as ICICI Bank, HDFC Bank, L&T, Reliance Industries, and Infosys currently form part of the fund’s top holdings. Most of these stocks have been among the core holdings in the portfolio for quite a long time. HDFC Hybrid Equity Fund follows a buy-and-hold investment approach and usually has a low portfolio turnover ratio, which was around 35-45% in the last one year.
In the last two years, HDFC Hybrid Equity Fund has benefited immensely from its prominent exposure to stocks like L&T, ICICI Bank, Bharti Airtel, ITC, Power Grid Corporation, SBI, KEC International, and Aurobindo Pharma. The fund also benefitted from its holdings in Axis Bank, Hindustan Petroleum, Infosys, Zensar Technologies, Kalpataru Projects International, Reliance Industries, Mahindra Holidays & Resorts, and PNC Infratech, among others.
HDFC Hybrid Equity Fund favours Cyclical and Sensitive sectors along with strategic allocation towards Defensives. The fund’s portfolio is inclined towards Banks which forms 21.5% of its assets. Engineering, Consumption, Infotech, Telecom, Power, and Pharma stocks follow with an allocation in the range of 3-8% of its assets. It also holds diversification in Healthcare, Construction, and Leisure, among others.
On the debt side, HDFC Hybrid Equity Fund predominantly holds exposure to Corporate Debt Instruments having moderate to high credit ratings and Sovereign rated G-Secs, which is currently at around 19.3% and 7.8%, respectively. It adjusts the maturity profile of the debt portion in line with the interest rate outlook which enables it to do well across interest rate cycles. The average maturity of the debt portfolio is currently around 6.3 years which makes it moderately sensitive to interest rate changes.
Is HDFC Hybrid Equity Fund suitable for my investment goals and risk tolerance?
The equity portion of HDFC Hybrid Equity Fund’s portfolio is spread across different market caps, but with a bias towards large cap stocks for stability and steady growth to the portfolio, while also strategically including mid and small cap stocks to enhance portfolio returns. The fund holds strong conviction in its stock holdings, typically maintaining a long-term perspective until maximum potential is achieved. Regarding the debt component, it primarily invests in G-secs that offer a high degree of safety with liquidity in secondary markets.
The fund manager Mr Chirag Setalvad, who has been managing the original balanced fund for well over a decade now, takes high-conviction bets and prefers to hold the investments and allocation for the long term. He avoids frequent portfolio changes and timing the market. HDFC Hybrid Equity Fund maintains a well-diversified portfolio of quality instruments across both equity and debt segment, which enables it to potentially perform well over complete market cycles.
HDFC Hybrid Equity Fund is suitable for investors looking for a relatively stable and reliable fund in the Aggressive Hybrid Fund category with a long-term view of at least 3-5 years.
Watch this video to find out the 3 best Aggressive Hybrid 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. 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.
The securities quoted are for illustration only and are not recommendatory.
This article first appeared on PersonalFN here