HDFC Long Term Equity: Should it be part of your portfolio?

Scheme: HDFC Long Term Equity Fund
Nature:  Equity oriented open ended fund
Inception: February 2006
Fund Manager: Srinivas Rao Ravuri
Assets under Management (31 May 2011) : Rs 756 crore

Analysis

==> HDFC Long Term Equity Fund was a 5 year close ended fund that has now become open ended. This fund has not managed to consistently outperform its benchmark of CNX Nifty though an improvement in the performance in recent times holds out promise for investors.  The fund has passed through the entire cycle of the fall and the consequent rise in the equity markets over the last 3 years and its holdings currently consist predominantly of large cap stocks.

==> In terms of management of the portfolio of the fund it is interesting to see how the situation has evolved over the last few years. At the end of December 2008 State Bank of India was the top holding of the fund with 6.7% followed by two pharma companies in the form of Divis Labs and Aventis Pharma. However the top sector in terms of exposure was Consumer Non Durables with 18% followed by Pharma at 15% and Banks at 11%.

==> There was a complete change in the portfolio six months down the line when the top holdings of the fund were Bharti, Biocon and Zee Entertainment with SBI falling to the fourth spot. At the point of time the fund was trailing its benchmark for all the time periods. There was a change in the sectoral ranking as Pharma jumped to the top spot followed by Banks and Consumer Non Durables. The change in the portfolio composition was reflected in the portfolio turnover ratio  that jumped to 77% from 54% six months earlier.

==> A year later the changes initiated by the fund manager became evident as exposure to the construction and the oil and gas sector increased. In fact at the end of June 2010 ONGC was  the top holding in the portfolio with a 6% exposure. Banks and Pharma consistently remained the top holdings of the fund and these occupied the top two positions though slowly banks climbed to the tip at the end of December 2010. Construction had come to the number three spot while consumer non durables had slipped from its previous high exposure.  Top holdings of the fund at this point were ICICI Bank, SBI & Cipla. At this point too the fund was not outperforming the benchmark.

==> The latest change in strategy has paid off with a very strong improvement in the performance has lifted the figures of the fund that now shows an outperformance for the one and three year time periods. However on the long term charts this still trails its benchmark. At the same time top holdings of the fund are ICICI Bank, Reliance Industries, SBi, ITC and Infosys. The top sector holdings at the end of May are banks, petroleum and construction.

Investors who are looking for taking a largecap exposure in their portfolio can consider this fund as an investment option at the present juncture. Existing investors who have continued with their investment even after the lock in can wait for some more time before exiting the fund.

For full details of the fund including NAV performance, portfolio, and peer comparison click HERE