The Hindu Business Line : HDFC Capital Builder Fund: Hold

Investors can retain their holdings in HDFC Capital Builder Fund, which has outpaced its benchmark CNX 500 over the past five years, barring 2006. The fund has a strategy of investing in companies that are priced below their fair value.

It shifted its focus towards mid-caps just at the start of rally in 2003, when the fund management changed. As the mid-cap rally tapered off in 2007 the fund stepped up its exposure to large-cap stocks. In its August portfolio, the fund held 60 per cent of assets in stocks with market capitalisation above Rs 7,500 crore. This change in focus may call for a wait-and-watch approach.

With the market being beaten down ruthlessly, several large-cap stocks are quoting below their intrinsic value. Fresh investments can, therefore, be made in a staggered manner in large-cap oriented funds. Wile HDFC Capital Builder has shifted focus to large-caps currently, its changing strategies suggest that it may adopt a more flexi-cap tactic and may well return to mid-caps if the rally begins.

If an investor is planning a portfolio for the long term — say, 5-10 years — mid-cap funds may be a more viable option. The ten-year absolute return of CNX mid-cap is 365 per cent against 260 per cent of the S&P Nifty, but for a shorter period of three years the former has trailed the Nifty by a good margin.

Performance: With a reduced exposure to mid-cap stocks the fund contained the downside better than pure mid-cap plays such as HSBC Midcap and Birla Midcap. Over a one-year period, the fund lost 23 per cent but the decline is less than its benchmark CNX 500 and HSBC Midcap by 5 and 14 percentage points respectively.

Having trailed the benchmark a good part of last year, the fund improved its performance in the last three months. While several funds moved into cash to protect the portfolio HDFC Capital Builder preferred defensive sectors to protect the portfolio.

Portfolio overview: The top two sectors — capital goods and banks together account for 35 per cent of the portfolio while the defensive sectors such as consumer non durables and pharmaceuticals cornered 20 per cent of the assets. The fund pruned exposure to mid-cap stocks such as Sintex Industries, Shriram Transport Finance and SKF India in favour of large-caps such as ITC, Bharti Airtel, Punj Lloyd and Reliance Industries.

Fund facts: Since April 2007 the fund is managed by Mr Chirag Setalvad.

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