Gathering pace

If you are looking for a fund that gives you the comfort of investing in large-caps and the excitement of having exposure to midcaps, consider investing in the HDFC Core & Satellite (HDFC C&S) fund.

Not only has the fund improved its performance in the last couple years, it has also delivered impressively both during market rallies and corrections.

Over the last one, three and five-year periods it has delivered reasonably well, managing to better the returns of its benchmark, BSE-200 each time.

Suitability : The fund has a mandate that requires it to invest the ‘core' of its portfolio in well-established large-cap companies.

This provides the much-needed comfort of earnings visibility to investors. The core makes up between 60-80 per cent of its portfolio.

The ‘satellite' comprises of riskier mid-cap and small-cap stocks. This makes its strategy somewhat similar to that of opportunities funds. The fund therefore may be suitable for investors with a penchant for risk and looking for diversification outside of pure large-cap funds.

Performance : The fund has delivered compounded returns of about 13 per cent, 7 per cent and 13 per cent over a one, three and five-year basis. The fund has scored over opportunities funds such as DSPBR Opportunities, Kotak Opportunities and HSBC Opportunities over both one and three-year periods.

It, however, lags the former two over a five-year period. This may be because the fund had underperformed significantly in the market rallies of 2006 and 2007.

During that time, the fund had invested only one-fourth of its portfolio in mid-cap stocks. Its sector selection too didn't help much.

The fund, however, has improved since. In the protracted correction of 2008-09, it contained the downsides better than its benchmark.

A mix of market-cap as well as sector allocation seemed to have helped the fund in its new-found form. In 2009 alone, it returned over 102 per cent, way better than the category average of 85 per cent.

Portfolio : In the last few months, HDFC C&S has reduced its exposure to pharma and media stocks, while maintaining a high exposure to banks and software. Engineering stocks now enjoy the highest weightage.

As for market-cap exposures, while large-caps account for half its portfolio, mid- and small-caps make up 9 per cent and 34 per cent respectively.

Top core stocks in its portfolio are Infosys, TCS, Bank of Baroda and Crompton Greaves, while the top satellite stocks are Emami, KEC International, Sundram Fasteners and Indo Rama Synthetics.

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