Picking up flavour-of-the-season banking stocks doesn’t seem to have helped HDFC Core and Satellite Fund beat its benchmark BSE 200 in the past one year. In a three-year time frame too, the fund has just about squeezed out better returns than its benchmark.

The fund’s 13 per cent one-year return is well below the BSE 200’s 23 per cent gain.

Sectors added

The fund began stocking up on banks in earnest from March this year. At 24 per cent by October, the share of the sector in the portfolio is well above the 9.4 per cent at the same time in 2011. But while banking sector index BSE Bankex shot up 33 per cent in the past year, the fund’s choices didn’t pan out as well.

Public sector bank picks such as Allahabad Bank, Canara Bank and Union Bank of India, which it bet on, have risen to a far lesser extent than even the BSE 200 in the past year.

While such stocks may have been attractive from a valuation perspective, negative news still rankled that weighed on them. Other banking stocks which the fund has bought include Federal Bank, State Bank of India and ICICI Bank, which became the top holding in the fund two months ago.

The auto sector was the other sector to see a good jump in allocations, with the fund gradually picking up poor performer Tata Motors DVR, while exiting Maruti Suzuki from February 2012 onwards. The auto sector had, in fact, been entirely ignored since November 2009, when the fund pulled out of, again, Maruti Suzuki. The oil sector too found favour with this fund, hiked August onwards.

Sectors reduced

The fund appears to have taken sector calls a tad too early. For instance, pharmaceutical and FMCG stocks steamed ahead even as sustainability was questioned and hope was that cyclical sectors would make a comeback. The BSE Healthcare and BSE FMCG indices were up 31 and 49 per cent in the past year.

The pharmaceutical sector’s 6.5 per cent share in the fund’s portfolio in September 2011 reduced to nil by the time October 2012 rolled around. Dishman Pharma, one of the stocks the fund exited, has doubled in the interim.

Similarly, the fund reduced holdings in FMCG stocks, moving out of top performer ITC and instead took up a small stake in P&G Hygiene, which hasn’t performed as well. Meanwhile, it hung on to underperformer Britannia Industries. Exposure to power stocks has also been pared. While betting on the auto space, the fund distanced itself from auto ancillaries, slowly getting out of Sundaram Fasteners, while moving out of other ancillary stocks such as Motherson Sumi earlier.

With growth pangs clouding large software companies, the fund did pare holdings in the sector, whose share in the portfolio dropped from 15.8 per cent in October last year to 8.7 per cent this October. But its top holding remained in Infosys, which has fared badly in the year gone by.

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