The Hindu Business Line : HDFC Capital Builder: Invest

Investors looking for a diversified fund with a subtle mid-cap tilt can consider investing in HDFC Capital Builder. After coming under the HDFC banner in 2003, the fund has shown steady performance. The change in strategy by focussing on mid- and small-cap stocks has delivered returns commensurate to the risk. Annualised returns of 72 per cent over the last three years places the fund at par with other HDFC Funds such as HDFC Equity and Top 200.

Investors can consider investing in the fund through the systematic investment route to capitalise on broad market weakness. HDFC Capital Builder attempts to follow a value investing approach, by identifying stocks priced below their fair values.

This strategy has led to the company adding a slight mid-cap touch to its portfolio. More than 60 per cent of the assets are invested in stocks with a market capitalisation of less than Rs 5,000 crore. This element enhances the fund's risk profile compared to other typically diversified funds.

The fund however has a well-diversified portfolio of about 50 stocks, spanning a wide range of sectors. It restricts its holdings in any stock to about 6 per cent, and exposure to any sector to 10 per cent. This diversification may make up for the company's risk profile.

Portfolio profile: The fund has recently increased its exposure to sectors such as consumer non-durables and capital goods. Balrampur Chini Mills, Hindustan Lever and Bharat Electronics are some of the stocks from the above sectors that have delivered high returns. Some of the stock choices are unconventional. Valecha Engineering, VIP Industries and Macmillan India are a few examples.

Performance: HDFC Capital Builder has a one-year-return of 56 per cent. This return trails a few diversified equity funds. The consistent track record over the last three years is, however, a positive. With a portfolio turnover of 58 per cent over one year, the fund appears to churn the scheme's portfolio less than a few other HDFC funds.

This may be more in tune with the scheme's pick-and-hold principle for undervalued stocks. The slightly lower returns compared to similar category funds may also be attributed to this relatively low portfolio churn.

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