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Aarati Krishnan

THE HDFC Capital Builder Fund has registered a sharp improvement in returns after a shift in its investment strategy in the first quarter of 2003. With returns of around 63 per cent in the first nine months of 2003, the fund has comfortably outpaced indices such as the S&P CNX Nifty.

However, with the fund hiking its exposures to cyclical and economically-sensitive stocks, its original "defensive" character appears to have been diluted, in the interests of pepping up performance. The fund's NAV now stands at Rs 17.64 per unit.

The recent shift in investment strategy may be good for investors in the fund. With a lower FMCG exposure and an accent on pharma and engineering stocks, the portfolio may be in a better position to participate in any further appreciation in equity values.

However, as a diversified equity fund, the fund's track record is inferior to that of funds such as HDFC Equity Fund, HDFC Top 200 Fund, Franklin India Bluechip and Templeton India Growth Fund. Those contemplating fresh exposures in equity may therefore consider these funds ahead of the Capital Builder.

Suitability: The HDFC Capital Builder Fund is positioned as a fund with a defensive orientation, which would use a value-investing approach to pick out strong, cash generating companies, which are "blue chips" in their respective businesses.

This approach initially led to a fairly high exposure to stocks in the FMCG, pharma and IT businesses until the end of 2002. However, the fund has since acquired a significant exposure to cyclicals.

Therefore, the downside to the fund's NAV in the event of a market reversal may not be much lower than that of a normal diversified equity fund.

Performance: The fund has managed to keep ahead of the S&P CNX Nifty in four of the past five years. The sharp surge in NAV in 2003 has helped perk up the long-term return numbers from the fund.

The fund's recent performance seems to have been driven by a sector shift, in which it toned down its IT, FMCG and pharma exposures while adding banking and engineering stocks.

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