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BW Businessworld

Staying Away From The Herd Mentality

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I don't believe in the flavour-of-the-day philosophy," says the 37-year-old Chirag Setalvad, senior fund manager at HDFC Mutual Fund. The import of this is: given the long-term strategy that most of his funds follow, it is best not to get swayed by ‘what's hot' during an aggressive market.

Setalvad's fund, HDFC Balanced Fund (with assets worth Rs 555 crore), is the winner of the Hybrid: Equity-Oriented category in the Businessworld-Value Research mutual fund study in 2011-12. No wonder then that the fund has managed to beat the benchmark index (Crisil Balanced Fund Index) yet again — while the fund gave returns of 7.13 per cent, the benchmark gave a dismal negative 2.67 per cent.

Another way to see this is: If you had invested Rs 10,000 in the fund, your returns for 2011-12 would have resulted in Rs 10,713 in your hands. On the other hand, the benchmark would have given you Rs 9,733 for a similar investment.

Setalvad, who returned to the fund house in 2007 after a brief stint at an investment firm, manages a total of six funds at HDFC MF with Rs 5,000 crore as assets under his management (including debt).

The HDFC Balanced Fund has been Setalvad's baby from inception and his philosophy of not following the herd has resulted in the fund beating the index time and again. This, he says, has been the result of a low churn rate (16.70 per cent) — that is, not making too many changes to the fund's portfolio in too short a time and not taking aggressive cash calls.

Hybrid equity-oriented funds are mandated to invest 65-72 per cent of their portfolio in equity and the rest in debt. HDFC Balanced Fund manages a good mix of 68 per cent in equity and the rest in debt. The equity portion boasts of solid names with the top five holdings in Reliance Industries, TCS, ICICI Bank, Infosys and Axis Bank.

Industry-wise, too, banks make up a good part of the portfolio (roughly 15 per cent), followed by technology, auto and auto ancillaries. Last year, a tough policy environment meant banks took the biggest hit and this, says Setalvad, helped them accumulate bank stocks at rock-bottom prices, a move that paid off towards the end of the year.

Keeping a safe distance from the real estate sector, too, helped the fund maintain its average return as valuations for the sector are not attractive once they are adjusted for risk. Apart from this, going heavy on mid-caps such as TTK Prestige, Balkrishna Industries and VST Industries when they were attractively priced helped.

Setalvad says what has worked for him and his funds is following long-term orientation, sticking only to those companies whose business the team understands and, most importantly, not believing in timing the market. And, when it comes to the benchmark, ‘beat it' is the motto of this manager.


(This story was published in Businessworld Issue Dated 30-04-2012)