HDFC Mid-Cap for buy and hold, low risk investors

HDFC Mid-cap Opportunities is suitable for all those investors who want a mid cap exposure for a period of more than three years says Arnav Pandya.

HDFC Mid-cap Opportunities

Nature: Equity Oriented Open Ended

Inception: June 2007

Assets under Management: Rs 1606 crore at the  end of September 2011

Fund Manager: Chirag Setalvad and Miten Lathia

Analysis

• The fund focuses on the mid cap space and was earlier a three year close ended fund that turned open ended at the maturity of the initial time period. At the end of March 2009 the fund had the highest exposure to consumer non durables at 19% of the portfolio. Banks, pharma and industrial products were some of the other sectors with a significant exposure and around 14% of the portfolio was in small caps at this point of time. In terms of the individual stocks GlaxoSmithkline Consumer Healthcare was the top holding followed by United Phosphorous, Castrol India, Crompton Greaves and Marico. The returns were negative for all time periods for the fund but it was outperforming its benchmark the CNX Midcap Index.

• At the end of September 2009 the top sectors had not changed their positions but the exposure to the consumer non durables had come down to 12%. 8% of the portfolio was in cash and other liquid instruments which is a high figure. While GlaxoSmithKline Consumer Healthcare was still the top holding there was a change in the top 5 list with Crompton Greaves, Amar Raja Batteries, Patni Computer and Axis Bank making up the remaining numbers. The portfolio turnover of the fund was low at 34% and it was now an underperformer since its inception.

• Six months later there was a change in the overall position as pharma was now the top sector pushing consumer non durables down to the second spot. Auto ancillaries, banks and  industrial products were the other sectors that  had around 10% exposure in the portfolio. IPCA, Crompton Graves and Patni were the top 3 holdings and now the small cap exposure had fallen to around 7% levels. The liquid levels in the portfolio had gone down and the fund still remained a slight underperformer for the 1 year period and since inception.

• At the end of September 2010 pharma remained the top sector followed by industrial products, auto ancillaries and banks. The top holdings of the fund were IPCA Lab, Exide Industries, Crompton Greaves, Union Bank of India and Carborundum Universal. The fund was an outperformer across all time periods including the one and the three year one and this was done with a portfolio turnover ratio of just 11%.

• By the end of March 2011 there were some small adjustments in the portfolio due to which industrial products edged out pharma to the top sector spot. In terms of the individual holdings it was IPCA labs, Carborundum, Lupin in top 3 spots followed by Union Bank and India bank. The fund had cash equivalents of nearly 6% and though the turnover ratio rose to 29% the fund was a massive outperformer over the one and three year time periods.

• The fund managed to hold on to a low turnover ratio of 19% at the end of September 2011. The highest exposure in terms of sector was to industrial products followed by banks and pharma. In terms of the individual stocks Carborandum Universal, IPCA, Lupin, Bata and Bank of Baroda were the top holdings. The fund had around 7% of its portfolio in cash equivalents and a similar figure as exposure to small caps. The fund remains an outperformer by a large margin for various time periods.

• This fund is suitable for all those investors who want a mid cap exposure for a period of more than three years. It will match the requirements of those who want a lower risk investment within the mid cap space while following a buy and hold strategy.

Disclaimer: Views expressed in this article are entirely personal.
arnavpandya@hotmail.com.

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