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Aarati Krishnan

INVESTORS can consider exposures in HSBC Equity Fund. In the one-and-a-half years since its launch, the fund has handled both the bull market and the subsequent correction,

The performance since launch compares favourably with that of funds with a good long-term track record.

Suitability: The fund allocates a significant portion of its portfolio to mid-cap stocks. This may make for a higher risk profile and more volatile returns than a fund which sticks to large-cap stocks.

The fund so far has handled the volatile phases in the market quite well.

But mid-cap stocks, as a class, fared better than large-caps in the recent market correction. Over the long term, mid-cap stocks could fall back into their established pattern of higher volatility, pegging up the fund's risk profile.

Performance: The performance, both in 2003 and so far in 2004, stacks up quite well against equity funds with a good long-term track record. It has also comfortably beaten its benchmark index — the BSE 200.

In 2003, with returns of 147 per cent on its NAV, the fund was among the top three diversified equity funds. It has retained this slot, as the market retraced its steps over the past six months.

Between December 2003 and now, the fund has managed a marginal appreciation of 3.9 per cent in its NAV. This compares favourably to funds such as HDFC Top 200 Fund, HDFC Taxsaver and Franklin India Prima Plus, which have a good five- year track record.

Portfolio overview: HSBC Equity scored by virtue of its overweight position in technology, and automobile stocks over the past quarter.

One significant change in the fund's portfolio over the past year appears to be a significant addition to the number of stocks in its portfolio.

The portfolio by end-June featured about 50 stocks, with over 30 of these holdings representing less than 1 per cent of the NAV.

Having such a large number of marginal holdings in the portfolio may help diversification and reduce impact costs; but it may also dilute the fund's performance.

It is likely to reduce the sensitivity of the NAV to good performance from its top picks. The sharp expansion in the fund's assets, which now stand at Rs 1,124 crore may be the reason for the expansion in the fund's holdings.

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