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After underperforming the BSE 200 Index, its benchmark, for over two years, HDFC Core and Satellite has witnessed a significant turnaround in the last four months. The fund, which figured in the bottom quartile one year ago, currently tops the returns chart on a one-year basis.
The recent outperformance has put the fund in the top quartile over three- and five-year timeframes too.
The fund’s strategy to step up allocation to cyclical themes such as financials, cement and infrastructure ahead of the general elections in May lifted its returns. Specifically, its mid- and small-cap stock picks in these high beta themes helped deliver impressive returns.
Betting on cyclicalsThe decision to increase exposure to two of its key bets, state-owned Bharat Electronics and Century Textiles, a diversified player with interests in textiles, cement and paper, provided a big boost to the fund’s performance.
From 3.2 per cent in March, the fund increased its holding in the stock of Bharat Electronics by 1.6 percentage points to 4.8 per cent in June. The stock has gained over 88 per cent since March.
Similarly, increasing allocation to Century Textiles, from 3.5 per cent in March to 4.5 per cent by June end pepped up HDFC Core and Satellite Fund’s returns.
The stock has delivered over 63 per cent returns over the past nearly four months.
Other stocks that delivered impressive gains for the fund include C&C Constructions (over 92 per cent returns) and GVK Power and Infrastructure (74 per cent).
Likewise, the fund has been buying banking stocks over the last four months.
While SBI, its big bet in the financials space, rose 40 per cent during this period, it was again the small- and mid-cap banking stocks — Union Bank (76 per cent), Canara Bank (75 per cent) and Allahabad Bank (60 per cent) — that delivered fat gains for the fund.
As of June, the fund held about 34 stocks in its portfolio with a weighted average market capitalisation of over ₹81,000 crore.
The fund currently bets big on financials with about 29 per cent of its assets invested in banking and financial stocks. Defensive themes — IT, pharma and consumer non-durables — account for about 18 per cent of HDFC Core and Satellite Fund’s total assets.
Cement (9 per cent) is yet another big bet in the cyclicals space.
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