HDFC Capital Builder: BUY

Among the funds investing in a blend of large- and mid-cap stocks, HDFC Capital Builder is positioned as a buy-and-hold fund which takes a long-term view of its stock choices. The fund has delivered returns that place it in the top to mid-quartile of schemes in its category.

In the last five years, the scheme has delivered compounded annual returns of 24.7 per cent. It has outperformed well-established peers such as L&T Equity and Canara Robeco Equity Diversified over this period. While the fund consistently delivers superior returns during long market rallies, it also limits the fall in its NAV to the level of its benchmark or even lower during market corrections.

HDFC Capital Builder does take significantly high exposure to individual stocks or sectors. But it tempers the risk by betting on established names and also increasing stakes in defensive segments. The scheme is suitable for investors with a medium risk appetite and at least a five-year horizon. It is a suitable diversifier for an investor’s portfolio.

HDFC Capital Builder invests mostly in large-cap stocks, though there is significant exposure (around 20 per cent) to mid-caps as well. This mix has helped the fund benefit from broader market rallies such as those witnessed in 2009, 2010 and 2012.

Exposure to individual stocks can go up to 5-8 per cent for its top holdings. Investments in its key segments too can get concentrated and go up to 20 per cent levels. Though this does increase its risk profile, it has latched on to large-cap names from blue chip indices.

Cash calls are also taken to the tune of 5 per cent during heavy market volatility. While banks have been the top holding, the fund has trimmed exposure to public sector players in the space and has mostly taken to private banks. So, instead of an SBI or Bank of Baroda, the likes of Axis Bank, ICICI Bank and HDFC Bank are favoured as they appear to be less affected by bad loans and are better placed to benefit from an economic recovery. It has reduced exposure to consumer non-durable stocks in the last one year as valuations soared in the segment. Stocks in the software, pharma, and petroleum sectors are part of the fund’s other key holdings.

The scheme mostly sticks to a ‘buy and hold’ strategy that has worked well for it over the years, though some tweaking is done at times.