Portfolio Moves. HDFC Core and Satellite fund: Not so well placed in falling markets

One of the earliest launches from the HDFC fund house on a multi-cap theme, HDFC Core and Satellite fund has had a chequered past.

Launched in September 2004 and benchmarked to the S&P BSE 200, the fund has had bouts of superior performance in bull markets but falling markets have played spoilsport.

The sharp volatility in the first two months of 2016 has hence not helped the fund’s performance much.

In 2014, when the markets were in a zippy mood, the S&P BSE 200 gained 35 per cent and the scheme zoomed 51 per cent. The fund benefited by higher allocations to cyclical themes such as cement, financials and infrastructure prior to the general elections.

In 2015, the fund posted a return of 5 per cent, while its benchmark lost 1.5 per cent. It benefited by making timely exits in PSU banks such as Punjab National Bank and Allahabad Bank, while trimming exposure in SBI and Bank of Baroda. Likewise, it completely exited from Tata Steel, which lost 35 per cent.

Sectorally, the fund reduced its PSU bank exposure from 19 per cent in the beginning of 2015 to around 4 per cent at the end of the year.

Software also saw a similar cut, from around 14 per cent to 8 per cent, while the fund upped its exposure to autos from around 8 per cent to almost 15 per cent.

The year 2016 started off on a sour note, with markets falling sharply in the first two months; the indices have now made up most of the losses. Even as the S&P BSE 200 is down around 2 per cent during the last four months, the fund is down 8 per cent.

Large holdings in Bharat Electronics and Larsen and Toubro hurt its performance. While the scheme had a 7.4 per cent exposure of its assets to Bharat Electronics, the stock lost around 11 per cent in value between January and March 2016.

Larsen and Toubro, of which the fund holds 5.3 per cent of its net assets, also gave lacklustre returns, falling around 5 per cent. The fund’s exposure of almost 4 per cent in KEC International also affected its performance. The stock lost a fifth in value.

However, the fund was able to cushion its fall through its exposure to Infosys (7.6 per cent) and Grasim (9 per cent).

Even as the software major posted 10 per cent gains during the first three months of this year, the fund marginally trimmed its exposure. On the other hand, it upped its exposure to the textile and cement major which, incidentally, formed its top holding in March 2016. The stock appreciated 3 per cent during this period.

As of March, the fund held around 25 stocks in its portfolio, with the top 10 stocks accounting for almost 61 per cent of its assets. The fund holds around 8 per cent in cash.

The fund seems to be betting on the economic recovery and consumption theme. Its top 5 sector allocations are currently in industrial capital goods (15 per cent), auto (13 per cent), construction projects (9 per cent), cement (9 per cent) and transportation (9 per cent).

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