HDFC Capital Builder Fund - INVEST

Investments can be made in the HDFC Capital Builder Fund, considering its ability to beat its benchmark consistently and do reasonably well during market rallies and corrections.

Over one-, three- and five-year periods, the fund’s return has bettered its benchmark — the CNX 500 index — by about 3.5 to 5 percentage points. With a track record of more than 15 years, it sports a 10-year CAGR of 27 per cent, placing it among the top fifteen diversified equity funds.

Performance and suitability

Starting out as a value-based fund and then moving on to focusing on mid-cap stocks, HDFC Capital Builder is now a fund with a blend of both large-caps and mid-caps.

This may explain its underperformance vis-à-vis pure mid-cap funds in recent rallies and outperformance over the same during corrective phases in the markets. For example, in the bull market that lasted from March 2009 until November 2010, the fund appears in the last quartile of mid-cap funds, classified by returns; at the same time, the fund contained downside much better than most other mid-cap peers in the 2011 market corrections.

It restricted the fall in its NAV (Net Asset Value) to about 26 per cent, gaining a place in the top quartile of mid-cap funds.

This large and mid-cap focus pegs down the risk a bit for the fund when compared with the typical mid-cap funds. Besides, on a one-year rolling return basis, its return beat the benchmark 93 per cent of the time in the last five years. Hence the fund is suitable for investors who can stomach only moderate risks and those who expect consistent, rather than top, returns.

Portfolio

While the fund did move a bit into cash during the 2008-09 market fall, its cash holdings have rarely moved up over 5 per cent in the last three years. However, to help contain downside, the fund buys into defensive sectors during corrective phases such as the one seen in 2011.

Between November 2010 and December 2011, the fund reduced its exposure to the capital goods sector from about 5 per cent to 2.2 per cent, banks from 20 per cent to about 17.8 per cent and completely exited construction stocks.

It stepped up on consumer non-durables for example, increasing its holdings by about 4 percentage points during this period.

In its latest (September 2012) portfolio, banks and software are the top sectors. With valuations inching up in Pharma stocks, it has pruned exposures in holdings such as Dr Reddy’s, IPCA Labs and Wyeth. Pharma holdings have gradually reduced to 7.2 per cent now from 15.8 per cent in January 2012. The fund seems to be betting on a revival in capital goods and entered stocks such as BHEL, Crompton Greaves, FAG Bearings and KEC International recently.

And 23 of the 36 stocks it currently holds are large-caps (market cap of Rs 7,500 crore and above).

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