Back in the orbit

In the past three years, HDFC Core & Satellite fared worse than its benchmark, delivering a meagre 0.7 per cent return. This performance placed it at the bottom of its category in the three-year time frame.

But the fund seems to have pulled up its socks of late, and its one-year return of 18.6 per cent places it in the top half of its category. HDFC Core & Satellite has a mandate to hold 60-80 per cent of its portfolio in ‘core’ large-cap companies while a ‘satellite’ portfolio comprises mid- and small-cap companies.

We take a look at the fund’s sector and stock choices for the past three years to see what has caused its underperformance.

Pharma and banks were the top sector choice during late 2009 and early 2010, but over the period, it trimmed its exposure in pharma stocks which have had a scorching run. At the same time, it increased holding in banks to as much as 28 per cent in April 2013 from 9.6 per cent in February 2012 . The sector has been volatile in the past three years.

The fund raised allocation to software to 17 per cent as of February 2014 from 7.7 per cent the year before, which helped the improvement in its performance in the past one year. Other moves that paid off well include an exit from auto ancillary, a sector with mixed performance and consumer durables in 2012, which have been laggards.

In their stead, petroleum products, automobiles and cement stocks were added in late 2010, early 2012 and July 2013, respectively. Picks such as Tata Motors-DVR, up 48 per cent in the past year, aided returns.

The fund actively takes cash calls too, based on market dynamics. For instance, in late 2011, the fund had 9 per cent of its allocation in cash while the markets were heading lower.

Recently it upped its cash allocation to 7 per cent as markets mark new highs.

The fund has been consistently stirring its core as well as satellite portfolio of stocks. Infosys, TCS, Crompton Greaves, BPCL, Oil India and ICICI Bank are among the few stocks that have stayed put in the portfolio for the past three years. KEC International, Wipro, State Bank of India, and Aurobindo Pharma were included in the past two years, which turned out to be astute picks.

While Wipro jumped 26 per cent in the past one year, KEC International was up 19 per cent and Aurobindo Pharma was a multi-bagger. The fund stocked up on Reliance Industries and Maruti Suzuki recently, which have started to rise.

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