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Transcript of HDFC Small Cap Fundhdfcfund.com/CMT/UPLOAD/ARTICLEATTACHMENTS/ADD_Small_Cap… · 400.00 500.00...
HDFC Small Cap Fund+
(An Open Ended Equity Scheme)(Erstwhile HDFC Small & Midcap Fund)
Small is Powerful!
1December 2016
RiskometerThis product is suitable for investors who are seeking*:
• Capital appreciation over long term• investment predominantly in equity and equity related instruments of
Small-Cap and Mid-Cap companies*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
+ W.e.f November 9th 2016, the fundamental attributes and the name of HDFC Small & Midcap fund has been amended. For complete scheme related information refer slide 13 onwards or the scheme information document.
Fund History
• Launched as Morgan Stanley A.C.E. Fundon April 3, 2008 as a multi-cap fund.
• Scheme acquired by HDFC Mutual Fund in 2014* and fund repositioned as HDFC Small & Mid-capFund with a focus on small and midcap stocks.
• Scheme repositioned** in November 2016 and renamed as HDFC Small Cap Fund, with a focus onSmall cap stocks
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*Scheme acquisition as on close of business hours on June 27th 2014.** W.e.f. November 9th 2016
HDFC Small Cap Fund – What Has Changed
Before
Small cap Exposure 50-75%
Midcap Exposure 25% – 50%
Number of Companies – 65 Stocks
Weighted Average Market Capitalization ~ 13,000 Crores
After
Small cap Exposure 80-100%
Midcap Exposure 0% - 20%
Number of Companies – 50 to 60 Stocks
Weighted Average Market Capitalization – 6,000 – 8,000 Crores
Impact
Predominantly small cap oriented equity fund
Improved focus on Small cap ideas and themes
3For complete scheme related information refer slide 13 onwards or the scheme information document.
Source: BSE & NSE. Stocks that have been traded in each of the past 3 financial years have been considered. Market Cap data as on October 31st 2016. Definition of large caps– Market cap above the largest stock by market cap in the Nifty Midcap 100 Free float index, Midcaps – Market cap above the largest stock by market cap in the NiftySmallcap 100 Free float index. All other stocks are classified as small caps. Stock cut off – Market Cap above Rs 150 Cr*carry a higher risk of market fluctuations and are prone to higher liquidity risk. Small caps are strictly not comparable to Large caps stocks. ^ Historical performance indications and financial market scenarios are not reliable indicator for current or future performance. ^^ Quality companies, strong balance sheets and well managed companies
Why Small Caps?
• High Growth Potential to drive higher returns relative to large caps*
• But volatility risk is not higher^ - Volatility exhibited by small caps^^ is in line with that of large caps (See slide 6)
• Large Universe - ideal for stock picking - Over 1,200 traded stocks with high dispersion of returns. (See slide 7)
• Scope for P/E Expansion to drive higher returns
• Smaller base of operations
• Ability to gain market share
• Focus on niche segment
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Large
caps – 19
Companies
Mid caps
84 Companies
Small caps
1,228 Companies
Large Universe
Market Cap above Rs 120,000 Cr
Market Cap above Rs 20,000 Cr
Others below Rs 20,000 Cr
Higher Growth Potential
“Big things often have small beginnings”
-Unknown
Why Small Caps?
Index Average Analyst Coverage
Nifty 50 Index 42
Nifty free float Midcap 100 Index 20
Nifty free float Smallcap 100 Index 6
• Size of the company increases
• Analysts start tracking stocks
• Institutional holding increases
• Better disclosure levels can lead to greater familiarity and high multiples
• As a result, smaller stocks which are often mis-priced get re-priced
Ownership Pattern amongst Index Constituents (%)
IndexPromoter
GroupInstitutional Retail
Nifty 50 Index 44 40 15
Nifty free float Midcap 100 Index 54 29 17
Nifty free float Smallcap 100 Index 57 19 24
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Source: Bloomberg, HDFC AMC Research, Company ReportsAverage analyst coverage is the average number of analysts covering each of the index constituents as on November 30th 2016. Ownership pattern as disclosed by index constituent companies to the NSE as on QE September 2016
Under Researched: Limited Analyst Coverage Under Owned: Lower Institutional Holding
Scope for P/E Expansion
For small cap stocks, company specific factors have a much higher impact than macro factors
Why Small Caps?
• A common perception is that small caps are riskier
• Volatility exhibited by the Small Cap benchmark is in line with large and midcaps. (See charts below)
• Numbers say otherwise
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Source: HDFC AMC Research, BloombergCalculations done from 1st Jan 2004 (Nifty Small cap 100 Index – Inception date) for all indices for the purpose of consistency of data. All calculations as of November 30th
2016. Annualized volatility calculated based on day wise changes in index values of mentioned indices. Past performance may not be sustained in the future.Historical performance indications and financial market scenarios are not reliable indicator for current or future performance. Small Caps carry a higher risk of marketfluctuations and are also prone to higher liquidity risks. Small caps are strictly not comparable to Large caps stocks.
Small caps fall similar to Large / Mid caps on bad days Small caps are equally volatile as Large / Mid caps
Is risk higher?
24.5%23.4% 24.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Nifty free float Smallcap100 Index
Nifty free float Midcap100 Index
Nifty 50
Annualized Volatility
574
383
256
534
332
209
567
344
216
100
250
400
550
700
Fall > 1% Fall > 1.5% Fall > 2%
Number of Days The Index Has fallen > 1%, 1.5% & 2%
Nifty Smallcap 100 Freefloat Index Nifty Midcap 100 Freefloat Index Nifty 50
Why Small Caps?
A Case for Active Investing
• Within small caps there are large number of companies that show high returns and ones with lowreturns = High return dispersion
• Therefore, scope for active stock picking
• Focus on quality of business and management, consistency in earnings growth and reasonable valuationscan lead to alpha generation
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Source: HDFC AMC Research, BloombergDefinition of large caps – Market cap above the largest stock by market cap in the Nifty Midcap 100 Free float index , Midcaps – Market cap above the largest stock by marketcap in the Nifty Smallcap 100 Free float index. All other stocks are small caps. Stocks selected have been traded in each of the past 2 financial years. The above chart is forillustrative purposes only. Small Caps carry a higher risk of market fluctuations and are also prone to higher liquidity risks. Small caps are strictly not comparable to Mid-caps/Large caps stocks.
Returns2016 2015
Large Cap Mid Cap Small Cap Large Cap Mid Cap Small Cap
Greater Than 50% - 1 232 3 35 629
20 to 50% 1 7 136 11 27 200
0 to 20% 2 27 196 2 11 166
0 to -20% 10 24 303 3 9 127
-20 to -50% 6 23 304 - 2 88
High Return Dispersion
“In God we trust; all others bring data.”
- W. Edwards Deming
Small Caps Have Outperformed Large Caps
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Source: HDFC AMC Research, BloombergAll calculations as of November 30th 2016. The current investment strategy is subject to change depending on the market conditions. 1st January 2004 is the inception date ofthe Nifty Small cap 100 free float index. Historical performance indications and financial market scenarios are not reliable indicator for current or future performance. SmallCaps carry a higher risk of market fluctuations and are also prone to higher liquidity risks. Small caps are strictly not comparable to Large caps stocks.
Returns 1 Year 3 Year 5 Year 1st Jan 2004
Nifty 50 3.65% 10.02% 11.22% 7.60%
Nifty Smallcap 100 Free Float index 12.52% 24.73% 17.55% 11.39%
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Nifty 50 Nifty Smallcap 100 freefloat Index
Nov-16
India’s Growth is Accelerating
Source: Bloomberg, CEIC, CSO, RBI, Kotak Institutional Equity Research ; E- Kotak Institutional Equity Research Estimates. Forecast of 2016-2020 from IMF September 2016 World Economic Outlook. Real Gross Domestic Product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation).
3.9 3.73.1
5.4 5.7
7.77.2 7.6
1951-60 1961-70 1971-80 1981-90 1991-00 2001-10 2011-15 2016-20E
Real GDP growth (average % change)
India Calling
• India one of the better placed economiesamongst large economies of the world.
• With a focus on rejuvenating growth, thegovernment has undertaken a series of policymeasures.
• Economic Growth should continue toaccelerate. Impact of higher infra allocation tobe felt strongly from FY17.
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Real GDP Growth (IMF Forecasts) 2017 estimates
World Average 3.4%
United States 2.2%
United Kingdom 1.1%
Japan 0.6%
China 6.6%
Emerging Markets & Developing Economies Average
4.6%
India 7.6%
Improving Macros 2015-16 2016-17E 2017-18E
GDP Growth (%) 7.6 7.1 7.7
CPI Inflation 4.9 5.1 4.5
Fiscal Deficit (% Of GDP) 3.9 3.5 3.1
CAD(% of GDP) 1.1 0.5 1.2
FDI (% of GDP) 1.7 NA NA
Interest Rates (%) 7.56.4 –Latest
NA
Notes:(a) From 2000-15, S&P BSE SENSEX PE is based on 1 year rolling forward,(b) For 2016-18E, we have calculated S&P BSE SENSEX PE is based on PAT numbers as of Mar-16, Mar-17 and Mar-18 end and used market cap as of Sep 30 2016.
Source : Kotak Institutional Equities, Bank Of America Merrill Lynch, Bloomberg.
• S&P BSE SENSEX EBITDA margins are improving steadily
• Improving EBITDA margins, lower interest rates should lead to improved EPS / Profit growth in coming years
Equity Markets – Market cap to GDP near 10 year lows
S&P BSE Sensex 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16E 4QFY16E 1QFY17E 2QFY17E
EBIDTA Margin (%) 17.4% 17.0% 17.0% 16.8% 18.2% 18.0% 18.3% 18.7% 18.3% 19.4%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
7%
12%
17%
22%
27%
32%
37%
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer (%) Healthcare (%) S&P BSE Sensex EBIDTA Margin (%) RHS
India Market Cap To GDP Ratio - Calendar Year ends 2005 - 18 (%)
10
76
98
167
62
108 112
6979
7187
80 79 7466
13.215.1
22.8
10.9
16.816.3
12.614.2
15.9
20.0
17.520.3
18.2
15.2
-
5
10
15
20
25
0
20
40
60
80
100
120
140
160
180
Mcap/GDP (%) P/E
EBIDTA margins of S&P BSE Sensex companies are seen improving
Investment Approach
• Focus on well managed small cap companies
• Businesses operating in a niche environment
• Identify businesses at a relatively early stage in their life-cycle
• Focus on quality metrics like ROCE & ROE
• Investments into growth companies with expanding businesses and improvement in profitability
• Seeking undervalued businesses
Final Portfolio
50 - 60 Stocks
Quality & Valuation Criteria
Market Capitalization Range
Rs 200 Cr – 20,000 Cr
1,087 Stocks
Stock Universe
1,312 Stocks
11The current investment strategy is subject to change depending on the market conditions
Taking the SIP Route Slow & Easy
Why SIP ?
• Imbibes financial discipline.
• Drops of water help fill a glass – Small andregular investments build a corpus over time.
• Eliminates the need to time the markets.
• Enables setup and plan financial goals.
• Option to stop at anytime thus providingflexibility.
• Aids in long term wealth creation.
Why an SIP in HDFC Small Cap Fund ?
• An open ended Fund with a well definedportfolio strategy.
• Targeted allocation to small cap stocks withgood growth and earnings potential.
• Given the volatility that small caps bring to theportfolio, an SIP helps weather such inherentvolatility
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SIP does not assure a profit or guarantee protection against a loss in a declining market. The user before acting on any information herein should makehis/her/their own investigation and seek appropriate professional advice and shall along liable for any decision taken on the basis of information containedherein. In view of individual nature of tax consequences each investor is advised to consult his/her own professional tax advisor.
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Type of Scheme Open-ended Equity Scheme
Inception Date
(Date of allotment)April 3, 2008
Investment Objective To provide long-term capital appreciation by investing predominantly in Small & Mid Cap companies
Fund Manager$ Mr. Chirag Setalvad
PlansDirect PlanRegular Plan
Options Under Each Plan: Growth & Dividend. The Dividend Option offers Dividend Payout and Reinvestment facility.
Minimum Application Amount
(Under Each Plan/Option)
Purchase: Rs 5,000 and any amount thereafter
Additional Purchase: Rs 1,000 and any amount thereafter
Load Structure
Entry Load:Not Applicable. Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI registeredDistributor) based on the investors’ assessment of various factors including the service rendered by the ARNHolder.Exit Load:
• In respect of each purchase / switch-in of Units, an Exit Load of 1.00% is payable if Units are redeemed /switched-out within 1 year from the date of allotment.
• No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.
Benchmark Index Nifty Free float Small cap 100 Index
$ Fund Manager Overseas investment –Rakesh VyasFor further details, refer SID and KIM available on www.hdfcfund.com and at Investor Service Centres of HDFC Mutual Fund
Fund Facts
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Asset Allocation Pattern
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*Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the Scheme.
The scheme may seek investment opportunity in the ADR / GDR / Foreign Securities (max. 30% of net assets) &Foreign Securities (max 20% of net assets) subject to SEBI (Mutual Funds) Regulations, 1996. The scheme may usederivatives (max 50% of net assets). Refer Disclaimer on Slide 16.
Type of Instruments Minimum Allocation(% of Net Assets)
Maximum Allocation (% of Net Assets)
Risk Profile of the Instrument
Equity and equity related instruments ofSmall and Mid-Cap companies of which
• Small-Cap companies• Mid-Cap companies
80
800
100
10020
High
Equity and Equity related instrumentsother than the above
0 20 Medium to High
Debt and Money Market Securities(Including securitized debt*)
0 20 Low to Medium
Under normal circumstances, the asset allocation of the scheme’s portfolio will be as follows:
Performance
Past performance may or may not be sustained in the future. Returns greater than 1 year period are compounded annualised (CAGR). The above returns areof `regular plan - growth option. $ Adjusted for bonus units declared under the scheme# The Scheme is co-managed by Chirag Setalvad and Miten Lathia.+The Scheme is co-managed by Chirag Setalvad (Equities) and Anil Bamboli (Debt). @Scheme performance may not strictly be comparable with that of itsAdditional Benchmark in view of balanced nature of the scheme where a portion of scheme's investments are made in debt instruments. ^Schemeperformance may not strictly be comparable with that of its Additional Benchmark in view of hybrid nature of the scheme where a portion of scheme'sinvestments are made in equity instruments. @@ Open Ended Equity Linked Savings Scheme with a lock-in period of 3 years. Load is not taken intoconsideration for computation of performance. 1. Benchmark 2. Additional Benchmark . NAV at Inception for all the above schemes was Rs 10. + W.e.fNovember 9th 2016, the fundamental attributes and the name of HDFC Small & Midcap fund has been amended.
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30 Sep 2015 to 30
Sep 2016
30 Sep 2014 to 30
Sep 2015
30 Sep 2013 to 30
Sep 2014
Since Inception
CAGR (in %)
HDFC Small Cap Fund+ 3/Apr/08 30.553 18.49 11.06 55.38 14.04 30,553
Nifty Smallcap 100 Freefloat Index1 17.27 5.87 80.47 6.17 16,630
Nifty 50 Index2 8.33 -0.20 38.87 7.19 18,047
HDFC Balanced Fund @ 11/Sep/00 122.081 13.65 11.65 60.86 16.86 122,081
CRISIL Balanced Fund Index1 9.68 4.38 28.89 NA NA
Nifty 50 Index2 8.33 -0.20 38.87 11.70 59,128
HDFC Mid- Cap Opportunities Fund 25/Jun/07 45.406 21.40 17.32 91.44 17.72 45,406
Nifty Midcap 100 Freefloat Index1 18.70 13.72 63.17 11.06 26,451
Nifty 50 Index2 8.33 -0.20 38.87 7.89 20,217
HDFC Capital Builder Fund# 1/Feb/94 223.679 15.42 7.59 61.63 14.69 223,679
Nifty 500 Index1 11.27 3.59 46.08 8.93 69,578
Nifty 50 Index2 8.33 -0.20 38.87 8.96 70,013
HDFC Long Term Advantage Fund @@ 2/Jan/01 267.685 18.94 -0.93 61.80 23.20 267,685
S&P BSE SENSEX 1 6.54 -1.79 37.41 13.08 69,338
Nifty 50 Index2 8.33 -0.20 38.87 12.91 67,708
HDFC Children's Gift Fund - Investment Plan $ @ 2/Mar/01 93.777 14.13 7.71 51.81 17.40 121,910
CRISIL Balanced Fund Index1 9.68 4.38 28.89 NA NA
Nifty 50 Index2 8.33 -0.20 38.87 12.86 65,918
HDFC Children's Gift Fund - Savings Plan $ ^ 2/Mar/01 40.794 12.46 11.17 11.11 11.29 53,033
CRISIL MIP Blended Index1 10.59 10.72 13.76 NA NA
CRISIL 10 Year Gilt Index2 24.74 15.45 6.85 NA NA
HDFC Multiple Yield Fund- Plan 2005 +^ 17/Aug/05 27.819 10.53 6.31 22.93 9.63 27,819
CRISIL MIP Blended Index1 11.17 10.72 15.45 8.49 24,770
CRISIL 1 Year T - Bill Index27.36 8.86 8.35 6.21 19,542
Scheme
Value of investment of
Rs. 10,000 Since
Inception (Rs.)
Other Funds Managed by Chirag Setalvad, Fund Manager of HDFC Small Cap Fund
NAV as on
30 Sep 2016
Discrete Returns in %
Inception Dates
Disclaimer
The presentation is dated 21st December 2016 and has been prepared by HDFC Asset Management Company Limited(HDFC AMC) based on internal data, publicly available information and other sources believed to be reliable. Anycalculations made are approximations, meant as guidelines only, which you must confirm before relying on them. Theinformation contained in this document is for general purposes only and is not an offer to sell or a solicitation to buy/sellany mutual fund units/securities. The document is given in summary form and does not purport to be complete. Thedocument does not have regard to specific investment objectives, financial situation and the particular needs of anyspecific person who may receive this document. The information/ data herein alone are not sufficient and should not beused for the development or implementation of an investment strategy. The same should not be construed as investmentadvice to any party. The statements contained herein are based on our current views and involve known and unknownrisks and uncertainties that could cause actual results, performance or events to differ materially from those expressed orimplied in such statements. Neither HDFC Asset Management Company (HDFC AMC) and HDFC Mutual Fund (the Fund)nor any person connected with them, accepts any liability arising from the use of this document.
HDFC Mutual Fund/AMC is not guaranteeing returns on investments made in this scheme. The current investmentstrategy is subject to change depending on the market conditions The recipient(s) before acting on any information hereinshould make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible/ liable for any decision taken on the basis of information contained herein. Past performance may not be sustained in thefuture. Investments in Small cap stocks are entail risk of loss of capital invested. Investors are advised to take due cautionwhile investing in this scheme.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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Thank You