HDFC Mutual Fund’s Prashant Jain is unapologetic about the recent poor performance of HDFC Top 200, the country’s biggest fund, despite some mistakes in picking the wrong stocks and sectors
HDFC Top 200 is the biggest fund in the country with a size of around Rs 9,765 crore as of August 2013. It has been one of the best-performing funds over the long term, managing to beat the index by a wide margin. But it has been a laggard over the last one year, when it moved away from the banking sector, which accounted for 25 percent of holdings (where SBI was the top holding at 7.75 percent). This year, Jain’s big bet is software, at 16.5 percent, with Infosys accounting for the bulk at 9.35 percent. Banking accounts for 19 percent, showing that the fund has changed its preference to go with the present tide.
Fund analysts feel size is the enemy of HDFC Top 200 as it brings in liquidity issues for the fund. But when Forbes India talked to Prashant Jain, executive director and chief investment officer at HDFC Mutual Fund, he disagreed. Jain does not deny that the fund made some wrong calls on stocks, but those are the only reasons for underperformance. Size doesn’t really matter and investors should not fret about the fund. Excerpts from the interview:
Q. HDFC Top 200 is trailing the benchmark this calendar year year-to-date after many years of beating the benchmarks. What has changed?
It is correct, that in the current year the fund is lagging the benchmark by nearly 4 percent. It is also correct that the fund has bettered the benchmark by a reasonable margin in the past; over the last 5, 10 and 15 years the fund has bettered the benchmark by 4.3 percent, 6.5 percent and 5.9 percent per annum [taking the net asset value as on September 6, 2013]. What has not worked for the fund this year is an optimistic view of the economy and the fund’s exposure to banks.
The sharp depreciation of the rupee has created additional pressures for the economy and we have taken some corrective steps to realign the portfolio to the changed environment.
Q. You have often said difficult times give you a chance to learn. Your funds have been through a rough patch in 1995, then in 1999, then in 2007, and now in 2013. What have you learned this time?
It is true that tough times teach more than good times. I am fortunate to have experienced several tough periods, made mistakes, learned each time and survived. I think, I have not made the same mistake twice and hopefully will not do so in future.
The learning this time has been that it is hard to forecast the economy, particularly over short periods, and that the external variables are increasing for India. A second observation is that increasingly decisions are nowadays being driven by narrow considerations and not by what is in the long-term interests of the country.
Finally, the turn of events has re-emphasised the age-old advice that one should live within one’s means. This applies in equal measure to individuals, countries and governments; and that if one has to borrow, it is better to borrow at home than outside.
Q. Is the size of the fund not an issue for performance?
In my opinion, this thought is an illusion that keeps on coming back for as long as I can remember. In a universe of, say, 100 funds, there will be large funds and there will be small funds. When a large fund underperforms, it is noticed a lot more and the easiest conclusion is that size is to blame; when a small fund underperforms, it is simply noticed less and size cannot be blamed.
Reality, in my opinion, is that there is no correlation between size and performance; anyone who feels this way should arrange all funds either in order of size or performance and the picture will be clear. Actually there are no large funds in India; the largest fund is less than 0.2 percent of the market capitalisation!
(This story appears in the 15 November, 2013 issue of Forbes India. To visit our Archives, click here.)