The Hindu Business Line : HDFC Capital Builder: Hold

Investors can retain their holdings in HDFC Capital Builder. After hugely underperforming the market in 2006, the fund has saw a pick-up in performance over a one-year period. Capital Builder’s portfolio has undergone a major overhaul and wears a more aggressive look. This makes it more suitable to investors with a risk appetite.

While the fund enjoys a long track record, it has displayed a chequered performance over the past three years. This may be partly due to the frequent changes in the fund’s positioning. Capital Builder has changed its focus from a value/defensive fund to a mid-cap focused fund in 2003-04 and now sports a profile similar to other diversified funds.

Some of the changes are likely to have occurred due to fund manager changes; three fund managers have handled this fund in the last three years. Investors can wait for the fund to display a greater consistency in its performance over the next year or so, before contemplating fresh exposures. For now, the fund need not form a core part of your portfolio.

Performance: HDFC Capital Builder has generated a return of about 55 per cent over the past year, beating the category average of about 45 per cent. Until 2006, Capital Builder did display a strong performance record and was among our top choices for those who desired a fund with a mid-cap focus.

However, it was a laggard in 2006. In a year when only an aggressive investment strategy helped funds outpace the markets, Capital Builder’s focus on defensive sectors such as FMCG and its well-diversified approach to investing worked against its favour.

The massive underperformance resulted in considerable outflows from the fund, which added instability to its performance. Over the past year, however, the portfolio appears to have undergone significant changes. Capital Builder shed its exposure to FMCG and auto ancillaries and has considerably stepped up its holdings in capital goods and metals stocks.

Large-cap stocks such as BHEL and SBI, and mid-cap picks such as Sintex Industries have delivered handsome returns. Timely entry into stocks such as Crompton Greaves and Jindal Steel and Power has also enhanced performance.

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