Last Updated on July 10, 2022 at 8:18 am
This is a performance review of HDFC Top 100 Fund. We ask if existing investors should exit the fund because of its recent poor performance or hold on, wait for the market imbalance to reduce and give Prashant Jain some more time to turn things around.
The world of mutual fund investing changes so fast that Prashant Jain’s track record of excellence is largely unknown to the huge number of young mutual fund investor who started just a couple of years ago. To anyone who started investing in mutual funds in the early 2010s or earlier Mr. Jain or his funds need no introduction- HDFC Equity, HDFC Top 200 (before it became Top 100) or HDFC Prudence (before it became Balanced Advantage).
History of HDFC Top 100: ITC Threadneedle Top 200 was launched in late 1996. It changed hands in 1999 and became Zurich India Top 200 Fund with Bobby Surendranath as the manager. Mr Jain took over in 2001 and has remained the fund manager ever since. HDFC acquired Zurich AMC assets in 2003 and the fund became HDFC Top 200.
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To comply with SEBI mutual fund categorization rules, the fund (already a large cap oriented by then) became HDFC Top 100 Fund. HDFC Equity had a different route: from Centurion AMC to Zurich to HDFC. A quote used in the review of HDFC Equity is worth reproducing here.
Way back in 1991, when I started my career, there was no screen-based trading; there were no mobile phones. While travelling, we would stop at a public call booth to check on the markets. Research from brokerages was less and information gathering itself was a major activity. I remember we had tied up with a few scrap paper dealers to sell annual reports to us by the kilo. No company visited us in our office except at the time of public issues. There was no investor relations role in companies. There were no star ratings done on mutual funds. Airfares were less affordable and we were advised to keep travel to a minimum, unlike today, when people have to be prodded to travel more. – Prashant Jain
In 1991 this author was still a year from finishing school. Mr Jain’s track record and extraordinary achievements over the years are not to be trifled with. That said, ultimately the investor wants performance for the additional fee paid. That is where it becomes a tough emotional choice for the investor.
HDFC Top 100 Fund vs Sensex TRI
Let us start with the since inception performance. It is nothing short of astounding. The fund benchmark was BSE 200 (until it was replaced by Nifty 100) but Sensex TRI was the only data source available with history as long as the fund! Since these indices are market-cap weighted the return difference would be insignificant for our current purpose.
From 1996 to 2008-ish the fund has no trouble beating Sensex. Someone who started investing in the fund immediately after the 2008 crash should still be reasonably satisfied with its performance.
Unfortunately, this has been the story of the fund for at least the last ten years!
HDFC TOP 100 Rolling Returns
A study of every possible 7, 10 and 15 years since inception can often be illuminating. For the most part of the fund’s history, investors had to pay a steep entry load (which is a straightforward commission payout rather than the current deceptive trail model – thanks to a regulator that worries more about increasing traction for a product than investor education. Direct plans were introduced as compensation).
So the returns that you see (including the SIP table) are before the entry load. They represent fund manager returns and not investor returns. Also, we shall be using the regular plan. The direct investor has also suffered but a touch less.
The dramatic drop in outperformance is evident especially in the 10 and 15-year rolling returns. There is only one question that existing investors will have to answer as discussed below. I am assuming new investors will simply not touch this fund.
HDFC Top 100 SIP Performance
The table does look awful. However please keep in mind, if the fund’s NAV did not move up in the recent past as much as it did in the distant past then lump sum (above) or SIP, returns would be bad. We saw this recently: What I learnt from an 11-year SIP in a midcap fund
| Trailing SIP Tenure | HDFC Top 100 Fund(G) | S&P BSE SENSEX – TRI |
| 1 | 6.99 | 14.12 |
| 2 | -0.92 | 6.49 |
| 3 | -0.35 | 6.47 |
| 4 | 1.76 | 8.12 |
| 5 | 4.12 | 9.13 |
| 6 | 4.39 | 8.55 |
| 7 | 6.12 | 9.19 |
| 8 | 7.31 | 9.80 |
| 9 | 8.19 | 10.37 |
| 10 | 8.15 | 10.10 |
| 11 | 8.37 | 9.99 |
| 12 | 9.65 | 10.73 |
| 13 | 9.68 | 10.30 |
| 14 | 9.95 | 10.15 |
| 15 | 10.54 | 10.46 |
| 16 | 11.70 | 11.26 |
| 17 | 12.91 | 12.05 |
| 18 | 15.06 | 13.27 |
| 19 | 16.48 | 13.89 |
| 20 | 17.13 | 13.98 |
| 21 | 17.07 | 13.73 |
| 22 | 17.32 | 13.74 |
| 23 | 17.52 | 13.59 |
| 24 | 17.69 | 13.43 |
What should investors do? Exit or hold on?
Existing investors only need to answer this single question: The rolling returns chart show a gradual decrease in outperformance, dropping to zero from 2018 onwards. Assuming this is because of a market imbalance (see references below) will the fund manager bounce back and provide at least a fraction of past outperformance with the economy starts moving again? If yes, can my goal wait that long?
If the answer to one or both questions is ‘no’ then you will need to exit the fund. Else you can hold on but it can excruciatingly frustrating. “Exit and invest where?” is a natural question. Index funds seem like an obvious choice, but that requires a special kind of mindset and is not for everyone. If you do not want index funds then you can consider hybrid funds – aggressive hybrid or balanced advantage.
References
- Return difference of Nifty 50 vs Nifty 50 Equal-weight index at an all-time high!
- Is this market rally bad for equity mutual funds (active/passive)?
- Do index fund returns depend upon just a few stocks (Concentration risk)?
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