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Delivered higher average returns than peers, with lower volatility

The fund seeks to provide long-term capital appreciation/income by investing predominantly in small-cap companies

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The fund was launched in April 2008 as Morgan Stanley A.C.E Fund by Morgan Stanley Mutual Fund. With the acquisition of the schemes of Morgan Stanley Mutual Fund by HDFC Mutual Fund in June 2014, it was renamed and repositioned as HDFC Small and Mid-Cap Fund. Subsequently, it was repositioned as a small-cap fund and renamed HDFC Small Cap Fund in November 2016. 

The fund seeks to provide long-term capital appreciation /income by investing predominantly in small-cap companies. The fund was ranked number one in the small -cap funds category in Crisil Mutual Fund Ranking (CMFR) for the quarter ended March 2018.

Chirag Setalvad has been managing the fund since June 2014; he has an experience of over 21 years. The fund’s month-end assets under management (AUM) grew more than four times from Rs 909 crore in June 2015 to Rs 4,043 crore in May 2018.

Trailing returns

The fund has consistently outperformed the benchmark (Nifty Small-cap 100 TRI) and the category (represented by funds ranked in the small-cap funds category in Crisil Mutual Fund Rank - March 2018) across all trailing periods under analysis. During the past one year, the fund outperformed the category and the benchmark by 11.44% and 15.91% (absolute), respectively. 

An investment of Rs 10,000 in the fund on June 27, 2014 (merger date in HDFC AMC) would have grown to Rs 21,198 (20.45% CAGR) on July 10, 2018 vis-à-vis the benchmark’s Rs 14,740 (10.08% CAGR) and the category’s Rs 21,076 (20.28% CAGR). 

SIP returns

A monthly investment of Rs 10,000 via a systematic investment plan (SIP) for four years would have grown to Rs 7.04 lakh (XIRR 20.05%). A similar investment in the benchmark would have grown to Rs 5.99 lakh (XIRR 11.41%).

Risk-reward matrix

The fund delivered higher average daily returns over the past three years compared with the benchmark and peers, coupled with lower volatility.

Portfolio analysis 

The fund’s small-cap allocation averaged 61.04% during the past three years. Small-cap allocation has been increased since November 2016, after the fund’s repositioning as a small-cap fund. 

At a sectoral level, the top five sectors constituted 47.18% of the fund’s equity portfolio, on average, during the past three years. The key sector allocations during the period include industrial products, banks, pharmaceuticals, auto ancillaries and construction projects. 

Dilip Buildcon has been the highest contributor to the fund’s performance during the period under analysis, followed by Aarti Industries, KEC International, Balkrishna Industries and V.I.P. Industries. 

Industrial products (16.20%) was the largest constituent of the fund’s equity portfolio as of May 2018, followed by software (13.12%), banks (8.30%), auto ancillaries (6.76%) and pharmaceuticals (5.31%). 

During the past three years, the fund invested in 124 stocks, of which 22 were held consistently. NIIT Technologies, Carborundum Universal, Swaraj Engines, Banco Products and Kalpataru Power Transmission were the highest contributors to the fund’s performance among the consistently held stocks.

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