HDFC Core and Satellite Fund: Switch

HDFC Core and Satellite Fund has a mandate to hold 60-80 per cent of its portfolio in ‘core’ large-cap stocks for stability and the rest in a ‘satellite’ portfolio of mid- and small-cap stocks, to boost returns. The fund is faithful to this allocation and remains fully invested in equities (over 90 per cent) across market cycles.

But its performance over the last few years has been unimpressive. The fund exits winning sectors too early and enters out-of-favour stocks. This may be because of the ‘value’ leanings in the fund’s mandate, suggesting that one might have to remain invested for longer periods to reap benefits. However, the strategy has failed to perk its performance over a longer-time frame too.

Weak show

In the last five years, the fund just managed to match the 5 per cent compounded annual return clocked by its benchmark — the BSE 200 index.

This makes it a lower rung performer among diversified funds. Though the fund has been able to outdo the benchmark to an extent in rallies and falls, it fails on the consistency parameter. It has managed to beat the returns of the BSE 200 only 57 per cent of the time over the past five years.

Over the last three years, it has underperformed the BSE 200 index by about 7 percentage points. This can be attributed to the sector calls the fund made in the last three years.

Though it held on to some auto ancillary stocks, it remained out of auto stocks throughout 2010 and 2011. It re-entered the space only in 2012, buying Ashok Leyland, even as headwinds grew stronger for commercial vehicle sales.

The fund did not participate much in the rally in pharma stocks, with holdings stagnating at 6-8 per cent from early 2010. True to its value leanings, it exited the sector by mid-2012. Ditto with consumer non-durables. Despite the slowdown, capital goods exposure remained intact.

Switch options

Unit holders of this fund looking for similar multi-cap options can switch to HDFC Growth. While it is not a top-of-the-chart performer, the fund will suit investors with moderate return expectations. HDFC Growth invests in mid- and small-cap stocks (stocks with market capitalisation of Rs 7,500 crore and below) to the extent of 30-40 per cent of its portfolio.

The fund also exhibits value-orientation. Besides out-performance in rallies, it contains downside during market corrections through cash calls or by taking defensive bets. Those with lower risk appetite, though, can switch to HDFC Equity, a large-cap-oriented fund with a steady track record.

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