Avoiding mistakes is important too

In a conversation with Outlook Money, Chirag Setalvad Fund manager, HDFC AMC, discuss about the performance of HDFC Balance Fund. Excerpts:

1. What has been the reason behind HDFC Balanced Fund’s consistent perfomance despite current volatility?

Across time periods, its better performance can be attributed to superior stock selection within most sectors. We have generally invested in companies where growth visibility was higher than peers, more sustainable and less dependent on external factors. This has helped generate positive returns. Exposure in Auto, IT, Pharma and Staples was a major driver of positive returns.

2. How is this fund structured?

It’s a large-cap fund, with flexibility to invest up to 20 per cent in mid-caps. Large-caps are the top 100 stocks by market cap and maximum cash exposure is 10 per cent. So, the asset allocation for large-caps is 70-100 per cent, for mid-caps 0-20 per cent, and for cash up to 20 per cent.

3. Tell us about the stock selection philosophy for this fund?

We invest in businesses with high growth visibility, sustainability or longevity of growth. We like businesses that are less capital intensive, less dependent upon regulatory framework and are driven by promoters with capability to deliver on growth opportunity. We also look for emerging companies in each sector, which can grow much faster than their larger peers in the industry and similar sized companies in other sectors. This provides growth and PE rerating-led upsides in the portfolio. We also look for positive change at the margins of a company like coming out of a capex cycle, volume growth pick-up for the sector, positive management change and positive regulatory change.

4. What lesson have you learnt on stock picking for this fund?

Avoiding mistakes or misfits in the portfolio is one of the major drivers of positive performance of the fund apart from right stock selection. We look for higher margin of safety while buying into stocks as we intend to hold them for the long term. Another important lesson is that staying invested in the stocks you like, for longer tenures, gives superb compounding benefit to the overall return of the portfolio.

5. What type of investors can opt for this fund?

Investors who are ready to commit money for at least three years can invest in this fund. Being a large-cap fund, the returns are less volatile and hence suitable for investors who look for stability of returns vis-à-vis an investment in the mid-cap fund, which delivers higher returns but is more volatile.  

olmdesk@outlookindia.com