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Fund Analysis: HDFC Growth Fund
Thu, Apr 21, 2016
Source : Khyati Shah, Citrus Interactive

HDFC Growth Fund is an open is an open-end multi-cap oriented equity diversified fund. The fund aims to generate long term capital appreciation by predominantly investing in equity and equity related instruments. The fund was launched in September 2000 and is benchmarked against the S&P BSE SENSEX Index. The fund has an AUM of Rs. 1,198 crores as on March 31, 2016 which has gone up by Rs. 246 crores as compared to last year March 31, 2015 (Rs. 952 crores).

 

Fund Performance

Although the performance of the fund is better than the benchmark, it has lagged its category average and benchmark in YTD performance. Its performance since inception has been better than its benchmark by over 4.16 percentage points.

Scheme Name

YTD

6 Months

1 Year

2 Years

5 Years

Since Inception

HDFC Growth Fund

-4.91

-1.85

-5.1

12.99

7.32

17.64

S&P BSE SENSEX

-2.97

-3.11

-9.36

6.39

5.43

11.42

Category Average

-5.16

-3.63

-5.85

18.76

11.92

NA

Rank

86/160

35/157

65/156

111/147

115/135

NA

Figures are in % as on March 31, 2016; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark in four out of last five calendar years (2011, 2012, 2014 and 2015). It underperformed the benchmark in 2013. It has outperformed the category average in only 2011. In each of the last 4 calendar years it has underperformed the peer set.

Scheme Name

2011

2012

2013

2014

2015

HDFC Growth Fund

-21.24

27.83

-1.4

42.85

-0.37

S&P BSE SENSEX

-24.64

25.7

8.98

29.89

-5.03

Category Average

-23.89

34.17

5.39

54.03

3.67

Rank

37/133

106/138

128/142

97/145

118/153

All figures in %

Risk: In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken higher risk compared to the category median.

 

Standard Deviation

Beta

HDFC Growth Fund

1.03

0.97

Category Median

0.92

0.86

Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided lower risk-adjusted returns than the category median.

 

Treynor

Sharpe

HDFC Growth Fund

0.01

0.01

Category Median

0.02

0.02

 

Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is higher than the category median highlighting higher risk of the fund.

 

Top 3

Top 5

Top 10

HDFC Growth Fund

40

55.35

74.81

Category Median

37.63

50.87

71.34

Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is higher than the category median highlighting higher risk of the fund.

 

Top 3

Top 5

Top 10

HDFC Growth Fund

22.19

32.9

51.05

Category Median

19.83

28.87

45.54

Higher sector & company concentration signifies the high risk profile of the fund.

Number of equity holdings: The fund currently holds 41 stocks in its portfolio (March 31, 2016), which is lower than the median stock count for the diversified-equity category, which currently stands at 45. Thus, based on equity count the fund runs a concentrated portfolio compared to its peer set. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 40.

Cash allocation: Its cash allocation at the end of March 2016 was 0.01 per cent. The average cash allocation for last five years is 2.44 per cent. Its maximum allocation to cash over last two years was 3.82 per cent in June 2015 and lowest was 0.01 per cent in March 2016. In 2015 it had an average cash allocation of 2.46 per cent. Thus on the whole the fund maintains lower percentage of allocation to cash.

Portfolio Characteristics: The top 5 sectors in the portfolio had an allocation of 55.35% which is lower than the category average of 49.61%. The top 5 sector include Bank - Private, IT - Software, Bank - Public, Refineries and Engineering – Construction.

The fund’s exposure to cyclical stocks currently is 71.78% followed by Services with 15.58% and Defensives with 6.37%. The Top five holdings are Infosys Ltd., HDFC Bank Ltd., ICICI Bank Ltd., State Bank Of India and Reliance Industries Ltd.

In the last six months the fund has bought stocks of Crompton Greaves Consumer Electricals Ltd., The Indian Hotels Company Ltd., Kalpataru Power Transmission Ltd.

Whereas stocks of Bharat Electronics Ltd., NTPC Ltd., Sun TV Network Ltd., Oil India Ltd. and Power Mech Projects Ltd. have been dropped from the portfolio. The stock of Narayana Hrudayalaya Ltd. was sold within 2 months of buying.

The current allocation to large cap is 74%, mid cap allocation is 17% and small cap allocation is 1.5%.    

 

Process

At least 80% of the funds will be invested in equities & equity related instruments and upto 20% in Debt and Money Market instruments. The focus is on long term investing in businesses with superior growth prospects and good management at a reasonable price. As per Scheme Information Document, the Investment Strategy is expected to be a function of extensive research and based on data and reasoning, rather than current fashion and emotion.

The investment approach is based on a set of well-established but flexible principles that emphasizes the concept of sustainable economic earnings and cash return on investment as the means of valuation of companies. Five basic principles serve as the foundation for this investment approach. They are as follows:

             Focus on the long term

             Investments confer proportionate ownership

             Maintain a margin of safety

             Maintain a balanced outlook on the market

             Disciplined approach to selling

The fund’s expense ratio is 1.75% which is lower than the category median of 2.43%. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.

 

Fund Manager

HDFC Growth Fund is managed by Srinivas Rao Ravuri and Rakesh Vyas

Mr. Srinivas Rao Ravuri is the Senior Fund Manager - Equities at HDFC AMC. He has over 18 years of experience in the field of Indian Financial markets, Primarily in Equity research and Fund management. Before joining HDFC Mutual Fund in 2004, he has worked with Motilal Oswal Securities Ltd. and Edelweiss Capital Ltd. as Research Analyst. He is also the Fund/Co Fund Manager for HDFC Infrastructure Fund & HDFC Rajiv Gandhi Equity Savings Scheme.

Mr. Rakesh Vyas is the Fund Manager - Foreign Securities and Senior Equity Analyst at HDFC AMC. He has over 9 years of experience of which 3 years in Application Engineering (Control & Automation) and over 5 years in equity research. He is with HDFC AMC from Oct 2009 till date. He has also worked with Nomura Financial Advisory and Securities Pvt. Ltd., Lehman Brothers Services India Pvt. Ltd., GE Power Controls India Pvt. Ltd., Larsen & Toubro Limited.

He is also the Fund/Co Fund Manager HDFC Core & Satellite Fund, HDFC Equity Fund, HDFC Large Cap Fund, HDFC Long Term Adv Fund, HDFC Mid-Cap Opportunities Fund, HDFC Premier Multi-Cap Fund, HDFC Small and Midcap Fund, HDFC TaxSaver and HDFC Top 200 Fund.

 

View

HDFC Growth runs a portfolio which is heavy on large cap currently. While the fund has fared better than its benchmark in most periods, it disappoints in terms of performance vis-à-vis other equity diversified category funds. Low allocation to cash and low exit load are some positives. There is scope for improvement with better performing alternatives available in the multi cap space.

 
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