HDFC Focused 30 Fund: Staging a Comeback

Welcome to  PersonalFN's weekly analysis on diversified equity mutual funds. In this issue, we have analysed HDFC Focused 30 Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

HDFC Focused 30 Fund is a process-driven Focused Fund that is renowned for its diligent risk management techniques. It has made a remarkable comeback after a prolonged period of underperformance.

Past performance is not an indicator of future returns
June 20, 2023
(Source: ACE MF)

Following a prolonged period of underperformance, HDFC Focused 30 Fund has exhibited exceptional gains in the last few years. HDFC Focused 30 Fund has outpaced the benchmark by an impressive margin of about 8-12 percentage points over the past 1-year, 2-year, and 3-year periods, positioning itself among the top quartile performers in its category. The substantial improvement in the performance of HDFC Focused 30 Fund in recent years has improved its track record over longer time frames of 5 years and 7 years, where it has surpassed many of its prominent peers and the benchmark.

While the fund's volatility remains competitive with the category average and the benchmark, its risk-reward parameters have significantly improved with the recent rebound in performance. This improvement is reflected in the fund's Sharpe Ratio, which is currently among the best in the category.

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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, HDFC Focused 30 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 on 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. HDFC Focused 30 Fund follows a buy-and-approach to select stocks with a long-term view. The fund's turnover typically ranges between 10% to 50%, 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 May 31, 2023, HDFC Focused 30 Fund held 27 stocks in its portfolio with the top 10 stocks accounting for nearly 50% of its assets. Popular large cap names like ICICI Bank, HDFC Bank, Bharti Airtel, Mahindra & Mahindra, and SBI currently form part of HDFC Focused 30 Fund's top holdings. Many of these stocks have been among the core holdings in the portfolio for quite a long time. HDFC Focused 30 Fund has kept itself away from certain popular high-growth stocks due to expensive valuations.

In the last two years, HDFC Focused 30 Fund has benefited immensely from its prominent exposure to stocks like ICICI Bank, SBI, L&T, Hindustan Aeronautics, NTPC, Bharti Airtel, Axis Bank, and HDFC Bank, among others. It has also benefitted from Cipla, Dr Reddy's Laboratories, Escorts Kubota, Mahindra & Mahindra, Apollo Hospitals Enterprise, Bank of Baroda, HCL Technologies, Bajaj Auto, Bharat Dynamics, Tech Mahindra, ONGC, and Bosch that have risen significantly in value in the past few months.

HDFC Focused 30 Fund favours Cyclical sectors along with strategic allocation towards Defensives and Sensitives. Around one-third of HDFC Focused 30 Fund's portfolio is inclined towards financial services which includes Banking at 26.4% and Finance at 7.1%. Infotech, Auto, Engineering, Pharma, Telecom, and Power stocks follow with an allocation in the range of 4-10% of its assets. HDFC Focused 30 Fund also holds diversification in Healthcare, Oil & Gas, Construction, Auto Ancillaries, Petroleum, and Logistics.

Suitability

HDFC Focused 30 Fund has established a commendable long-term performance track record. Even though HDFC Focused 30 Fund's underperformance during 2016 to 2019 was a cause for concern for its investors, the fund has made a strong comeback in recent years, thus significantly improving its overall performance track record. The fund has the ability to thrive over complete market cycle.

HDFC Focused 30 Fund emphasises maintaining a well-diversified portfolio comprising fundamentally sound, high-quality stocks and holds them with a long-term view to derive its full potential even though the bets may not pay off immediately. By focusing on quality stocks available at reasonable valuations, HDFC Focused 30 Fund minimises the risks by incorporating a better margin of safety.

It is important to note that the fund management team of HDFC Focused 30 Fund has witnessed a higher turnover in recent years. Nevertheless, HDFC Focused 30 Fund has always had experienced fund managers at helm. Its current fund manager, Ms Roshi Jain, has an overall experience of 17 years and is well capable of taking the scheme to new highs.

HDFC Focused 30 Fund is suitable for investors seeking a well-diversified equity fund with a focus on high conviction bets.

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.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: 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.

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

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.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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Details of associates

1. Money Simplified Services Private Limited;

2. PersonalFN Insurance Services India Private Limited;

3. Equitymaster Agora Research Private Limited;

4. Common Sense Living Private Limited;

5. Quantum Advisors Private Limited;

6. Quantum Asset Management Company Private Limited;

7. HelpYourNGO.com India Private Limited;

8. HelpYourNGO Foundation;

9. Natural Streets for Performing Arts Foundation;

10. Primary Real Estate Advisors Private Limited;

11. HYNGO India Private Limited;

12. Suresh Lulla;

13. I V Subramaniam.

1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the Research Analysts holding units of HDFC Hybrid Equity Fund;

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