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Mutual Fund Review: HDFC Core & Satellite Fund

Type: Equity Diversified
Launch Date: 10-Sep-2004
Fund Manager – Dhawal Mehta
 
HDFC Core & Satellite fund was launched in Sep 2004 and has appreciated by 35.08% in the last one year period, and has outperformed its benchmark index BSE 200 by just around 4%.
The primary objective of the scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value.

The fund house defines well established and predominantly large cap companies as the 'core' group, whereas the 'satellite' group comprises predominantly mid/small cap companies that offer higher return potential but carry higher risk. The allocation to core group is proposed to be kept around 60-80% of the portfolio, and would normally have a market capitalisation of more than Rs 2500 crore.
 
The scheme's allocation to core group in Aug 06 has been around 80.24%, and satellite group accounts for 13.9% of the net assets, and historically, the allocation to core group has rarely fallen below 70% of the total net assets.
 
The scheme currently manages a corpus of Rs 741.79 crores, which has seen a sustained increase over the months, inspite of the scheme's indifferent track record. HDFC Core & Satellite fund's performance has not been too encouraging, and the scheme has struggled to outperform its benchmark in most of the selected time frames.
 
The scheme is mandated to invest 90-95% of its assets in equity and equity related instruments and 5-10% in fixed income securities. As on Aug 06, equity investment form 94.16% of the total assets and has remained more or less at the same levels throughout.
 
Technology sector gets the highest allocation in the portfolio with 15.17% weightage followed by Electrical & electrical equipments with 12.35% weightage; other favoured sectors in the portfolio are Auto & auto ancilliaries and Metal, which together account for around 51% of the portfolio.
 
The scheme has exposure to 25 stocks top 5 holdings account for 33.67% of the assets, and top 10 make up around 60.13%. Tata Motors is the scrip with highest weightage of 7.41%, for a scheme with a corpus in excess of 700 crores; the portfolio is a bit concentrated. Other top holdings in the portfolio are Satyam, Infosys, Crompton Greaves and BHEL. The portfolio has remained unchanged over the last month, and only Crompton Greaves saw some buying by the fund manager
 
The scheme has not been successful in playing around the theme of choosing stocks based on their market capitalisation and other criteria's like leadership in their respective sectors and has given a lackluster performance till now. Other equity schemes managed by the fund house are doing quite well, and despite having a good fund size, the restrictive investment policies is not helping the scheme in any way. Investors would be well advised from the scheme to other schemes of the same fund house, which seem to be performing better comparatively.
 

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