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HDFC Balanced Fund: What makes it a winner

Suman Layak     March 15, 2012
Chirag Setalvad, who manages HDFC Balanced Fund, the winner for the category hybrid growth, spoke to Business Today on his investing philosophy and his love for the sun and sand.

BT: Tells us about the investing philosophy of the fund, HDFC Balanced.
CS: The hybrid fund has 65-72 per cent equity and the balanced is in fixed income. On the equity side, the idea is to buy a mix of large and midcap companies. Focus on growth at a reasonable price. Hold them for the long term. And stick with quality. On the fixed income side, we hold till maturity. Don't trade; and typically for shorter durations - about two years. Both corporate and government, more on the corporate side so far, but it changes back and forth.

BT: The variation in equity 65% to 72% depends on…?
CS: That depends on how we are finding individual opportunities. We follow a bottom-up approach, stock selective, stock specific basis. Out of the equity, typically about 50-60 per cent would be in large caps and the rest in mid caps.

BT: How does it work - what kind of a team do you have?

CS: We have a team, Prashant Jain is the CIO obviously, then we have four fund managers, six analysts. We have a team approach to research, that generates ideas. Fund management is not a team-based approach, it is individual approach. But fund management and research are closely interconnected. So research is team, fund is individual.

BT: How many funds to you handle?
CS: Six.

BT: Is there a common theme in the funds you handle?
CS: No they are various types. Child investment, midcap, balanced, all types.

BT: How long have you been with this fund?
CS: I have worked with HDFC for ten years but I left in the middle and I rejoined. I have been looking after this fund since I rejoined - so it has been a little more than four years. I joined in March '07, so it is close to five years.

BT: But at first you were an investment banker?

CS: in the beginning of my career for a very short period of time. One or two years.

BT: Does that bring any value to your current job?
CS: That was my first job as a young man and has nothing to do with my current work.

BT: You spoke about your investment approach. Does that apply to all the funds you manage?
CS: It applies for all our funds and not just the ones I manage. We follow a research driven process, which is more bottom-up in the way we create our portfolios. We have to buy high quality businesses at reasonable prices and hold them for the long term.

BT: What would be the best moments of your fund managing career?
CS: (Laughs…) There is no best or worst moment as such.

BT: Any moment that you would want to recall?
CS: Aaah, I think re-joining HDFC is a very positive experience. Sometimes you leave a place and rejoin - one has apprehensions. But it has been a very positive experience. I think working here, with the people - everybody says we have a solid team, good people. Positive place to work.

BT: The team has been stable. Its something people outside also say about HDFC MF.
CS: Team has been very stable. We have not too many people - even if you look at a longer term of 10 years, we have not lost too many people.

BT: What are your views on the organisation, HDFC MF?
CS: We are very research driven, fundamentally oriented. Stable teams and lot of experience. We are disciplined; we stick to what we understand. We are long term. We do not churn our portfolios very much. We try and have a contrarian approach.

BT: Contrarian approach is a general theme?
CS: No not a general theme. Let me re-phrase it. We try and look at things differently.

BT: Can you help me with an example of how you are different?
CS: When we are evaluating a company we like to meet their customers and suppliers, ex-employees and try to do factory visits. Some of these are done by others but we try to do it more rigorously. We stick to our fundamental competence and are as disciplined as we can. We do these things again and again. Research driven, long term oriented, not trading, stick to fundamentals, stick to our circle of competence. Things that we do not understand we stay away from, focusing on purchase price, margin of safety. There may be others that do some of these, but we do all of them and do them in a particular way.

BT: When you left HDFC did you work with another fund house?
CS: I have been with HDFC for 12 years since its inception in 2000. I left in the middle for three years and worked for a hedge fund and then I returned.

BT: So as a person - what are your hobbies?
CS: I spend time travelling.

BT: What kind of places do you like?
CS: Nothing as such. Regular travel. We enjoy water a lot, so we tend to go to the sea side. Overseas and India. We just enjoy the water, the food, we like warm temperature. Myself and my wife, who is a consultant. We like the sun and sand.

BT: Your favourite place?
Goa. Couple of times a year. Been visiting right through.

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