HDFC Focused 30 Fund: Excelling through High Conviction Stocks

Launched in September 2004, HDFC Focused 30 Fund, previously known as HDFC Core & Satellite Fund, operates as a Focused Fund. The fund primarily targets well-established large-cap stocks for the core portion of its portfolio while pursuing growth opportunities with substantial allocation to small and mid-cap stocks. Its investment strategy is built around a portfolio of 30 high-conviction stocks with the potential to outperform the market over the medium to long term. The fund actively seeks compelling long-term opportunities across diverse sectors and market caps, ensuring a well-diversified portfolio to effectively manage risks. It focuses on identifying quality stocks available at reasonable valuations.

Over its two-decade journey, HDFC Focused 30 Fund has faced multiple challenges, including an extended period of underperformance during the bull market from 2016 to 2020 due to higher allocation to stocks from the out-of-favour PSU segment. During the 2020 market crash, its underweight positions in high-performing sectors such as Pharma and Infotech further hindered its performance. However, starting in the latter half of 2020, HDFC Focused 30 Fund witnessed a turnaround, benefiting from its strategic investments as markets began their upward trend towards recovery.

In the past five years, HDFC Focused 30 Fund has delivered a remarkable compound annual growth rate (CAGR) of 24.1%, outperforming its benchmark, the Nifty 500 - TRI, which recorded a 17.2% CAGR. An investment of Rs 10,000 in the fund five years ago would have grown to Rs 29,417, compared to Rs 22,104 if invested in the benchmark index.

After a prolonged period of underperformance, HDFC Focused 30 Fund has shown exceptional gains starting from 2021. Over the past 1-year, 2-year, and 3-year periods, the fund has outperformed its benchmark by 6.5 to 10 percentage points on a rolling return basis, placing it among the top quartile performers in its category. This improvement has strengthened its long-term performance over a 5-year and 7-year period, during which it has surpassed many of its peers and the benchmark. Thus, even though there may temporary setbacks the fund has showcased resilience and ability to deliver strong returns over the long run.

HDFC Focused 30 Fund now stands strong in terms of risk-reward metrics, with volatility among the lowest in its category, much lower than the benchmark. Its Sharpe ratio (0.38) which is currently the best in the category, reflects improved risk-adjusted returns.

What is the investment strategy of HDFC Focused 30 Fund?

As a Focused Fund, HDFC Focused 30 Fund is mandated to invest a minimum of 65% of its assets in equities, holding a maximum of 30 stocks. Accordingly, the fund aims to create a concentrated portfolio of high-conviction ideas, backed by extensive research. It manages risk by holding a diversified portfolio spread across market caps and sectors. HDFC Focused 30 Fund takes a benchmark-agnostic approach and determines its overweight/underweight positions based on market outlook. The fund follows a bottom-up approach to identify high-quality growth-oriented stocks for the long term.

While selecting stocks for the portfolio, HDFC Focused 30 Fund prioritises fundamentally strong companies having competitive advantage, the ability to capitalise on opportunities while managing risks, as well as track record of corporate governance, ESG sensitivity and transparency. It emphasises valuation to provide a reasonable margin of safety. While assessing the valuation HDFC Focused 30 Fund prefers to adopt a holistic approach instead of solely relying on traditional parameters like P/E and P/B. It follows a buy-and-hold approach to select stocks with a long-term view. The fund's turnover typically ranges between 30-35%, signifying a low level of portfolio churning.

HDFC Focused 30 Fund holds its equity exposure across market caps but with a notable inclination towards large-cap stocks. As of January 31, 2025, the fund held 27 stocks in its portfolio with the top 10 stocks accounting for 54% of its assets. Popular large-cap names like ICICI Bank, HDFC Bank, Axis Bank, Maruti Suzuki India, and SBI Life Insurance Company currently form part of the fund's top holdings. Many of the stocks in its top holdings have been part of the core portfolio for quite a long time.

In the last two years, HDFC Focused 30 Fund has benefited immensely from its exposure to ICICI Bank, Bharti Airtel, HCL Technologies, Apollo Hospitals Enterprise, SBI, Bosch, Bajaj Auto, Escorts Kubota, and Cipla that contributed around 21% to its absolute gains. It booked profit in Avalon Technologies, United Spirits, Blue Dart Express, Power Grid Corporation of India, Tech Mahindra, Dr Reddy's Laboratories, Prestige Estates Projects, and Hindustan Aeronautics, among others.

HDFC Focused 30 Fund favours Cyclical sectors but maintains strategic allocation towards Defensives and Sensitives. Around 39% of the fund's portfolio is inclined towards financial services which includes exposure to Banking at 34.8% and Finance at 4.3%. Auto & Auto Ancillaries, Pharma, and Infotech stocks follow with an allocation in the range of 4-13% of its assets. HDFC Focused 30 Fund also holds diversification in Telecom, Healthcare, Metals, and Consumption.

Is HDFC Focused 30 Fund suitable for my investment goals and risk tolerance?

HDFC Focused 30 Fund has built a commendable track record over the long term. While its underperformance from 2016 to 2019 raised concerns among investors, the fund's robust recovery in recent years has significantly boosted its overall performance. This demonstrates HDFC Focused 30 Fund's ability to navigate complete market cycles effectively, even if it faces short-term challenges.

HDFC Focused 30 Fund prioritises a fairly diversified portfolio of fundamentally sound, high-quality stocks held with a long-term perspective. By targeting quality stocks available at reasonable valuations, the fund reduces risk and provides a strong margin of safety. While HDFC Focused 30 Fund's portfolio spans across market caps, it leans toward large-cap stocks, ensuring stability and steady growth. Tactical allocations to mid and small-cap stocks enhance returns, and the fund's conviction-driven strategy often rewards long-term investors.

HDFC Focused 30 Fund is suitable for investors seeking a large-cap-oriented focused equity fund driven by high-conviction strategies, and having a long-term investment horizon of 5-7 years.

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.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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