The Hindu Business Line : HDFC Core & Satellite Fund: Buy

AN investment may be considered in HDFC Core & Satellite Fund, as it appears to have the potential to maintain its impressive performance and a portfolio tilt that could stand in good stead in a choppy market. After a sluggish start, the performance has picked up over the past six months. It has outpaced it benchmark BSE 200 comfortably after trailing it earlier in the year.

The NAV has gained by about 70 per cent over the past year. We usually do not recommend funds that have a track record of just a year; instead, we rely on funds with an impressive long-term track record across different phases of the market. In this case, we feel confident given the track record of HDFC Mutual across its gamut of equity funds and so, make an exception.

That this fund has managed to comfortably outpace the BSE-200 — an index that is not easy to beat — is an added plus. And, unlike several new funds from houses such as Franklin Templeton, HDFC Mutual and SBI Mutual, this fund has a moderate asset base. Investors could, however, allocate a small part of their exposures in mutual funds to HDFC Core & Satellite. Take exposures only if you are already invested in top-of-the-charts funds such as Magnum Contra, Franklin Prima, HDFC Top 200, HDFC TaxSaver and Magnum Multiplier Plus. The fund has a compact portfolio of about 25 stocks despite an asset base of about Rs 450 crore. Such an investment strategy requires identification of a small number of ideas and also reduces the number of calls that have to be made. A similar strategy has served funds such as HDFC TaxSaver well. Going by the performance so far, the strategy appears to be working nicely for HDFC Core & Satellite Fund, too.

The fund has a distinct tilt towards large-cap stocks that are at the core of the portfolio. It has about 60 per cent in such stocks now. The rest are invested in a mix of mid- and small-cap stocks.

In terms of sector preferences, the scheme is well positioned to capitalise on themes that may deliver gains over a one-year period. Its focus is largely on stocks in the engineering sector, which account for about 25 per cent of assets.

IT and banking are other sectors that figure prominently in the portfolio now. Stock selection in the large-cap space inspires confidence with exposures such as Infosys, SBI, Crompton Greaves, ITC and Hindalco.

: HDFC Core & Satellite Fund was launched in September 2004. The minimum investment is Rs 5,000. The entry load is 2.25 per cent. There is no exit load. Mr Dhawal Mehta is the fund manager.<137>

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