Mar 20, 2008

HSBC Equity Fund - Analysis

HSBC Equity: Invest

Investors seeking exposure to large-cap stocks can consider investing in HSBC Equity. The fund has built a strong track record over the last five years, when bulls have ruled the roost. HSBC Equity has delivered an annualised return of 55 per cent and figures in the top ten of fund rankings.

Its performance in 2006 and 2007 has not been as impressive as peers DSPML Top 100 Equity and Birla Sun Life Frontline Equity. But the fund is a fairly consistent performer, having outperformed the Nifty in four out of five years and has a demonstrated ability to contain downside during market corrections. Investors can utilise market dips to add to their exposures in the fund.

Suitability: HSBC Equity is a predominantly large-cap fund and tends to stick to its mandate more strictly than most diversified equity funds. Only about 15 per cent of its assets are invested in stocks with a market capitalisation of less than Rs 10,000 crore.

HSBC Equity tends to restrict its exposure to stocks to about 5-6 per cent. However, the fund takes concentrated exposures in sectors.

HSBC Mutual Fund follows a business cycle approach to investing; this typically means a top-down approach. Fund performance, therefore, hinges on the fund manager's ability to make the right sector calls.

The fund is suitable for investors with a moderate risk appetite. In light of its strong track record, HSBC Equity can form a part of your core holdings.

Performance: Over the past year, HSBC has delivered a return of about 28 per cent, beating its benchmark BSE 200 by 5 percentage points. The fund figures in the upper quartile of performance charts and has fared better than most other large-cap funds.

An analysis of its monthly performance over the past five years highlights the consistency in fund performance. HSBC Equity has outperformed the BSE-200 more than 60 per cent of the time. Its performance against the index is particularly noteworthy during market corrections, with the fund usually containing declines better than BSE-200.

Portfolio overview: HSBC Equity has an asset base of close to Rs 1,400 crore. It manages a compact portfolio of about 35 stocks, with the top ten stocks accounting for about 40 per cent of the portfolio.

In terms of sector allocation, there are significant changes in the current portfolio from a year ago. In January 2007, the fund's top sector exposure was software at 17 per cent.

This has been whittled down to 1 per cent in the latest portfolio. As the fund takes a business cycle approach to investing, this appears to indicate a significant change in its views on the software sector. Similarly, capital goods, automobiles and cement are no longer significant holdings in the portfolio.

The banking sector is now the top holding in the portfolio, accounting for 14 per cent of the assets. Telecom operators, FMCG and oil and gas companies also figure prominently in the portfolio.

As of end January, the fund held 15 per cent cash in its portfolio. This may enable it to take advantage of broad market corrections. The fund is jointly managed by Mr Mihir Vohra and Mr Jitendra Sriram. The minimum application is Rs 10,000. The NAV is Rs 98.30.