Benchmarked to the Nifty 500 index, HDFC Capital Builder boasts of returns that match or outdo that of peers, such as Franklin FlexiCap and HDFC Equity over one-, three- and five-year periods.

The fund also sports a tough-to-beat track record of consistency, making it a good fit for the portfolio of investors with appetite for a bit of risk.

While the fund turned more conservative in the years following the 2008-09 market meltdown, it has taken bigger exposure to stocks with market capitalisation below ₹10,000 crore since 2012.

Through the volatile phases and rallies of the last four years, the fund has held 20-30 per cent in mid-cap stocks. Over one-, three- and five-year periods, the fund has bettered its benchmark by 4-7 percentage points. It shows a one-year rolling return of 93 per cent over the last five years, scoring full marks on consistency of performance.

Strategy

HDFC Capital Builder took some time to warm up to the mid-cap led rally of 2012, having had less than 10 per cent exposure to mid-caps until then. Thus, it underperformed its benchmark that calendar year.

But it has managed to convincingly beat the Nifty 500 in the years that followed, be it during the volatile markets of 2013 and 2015 or the rally of 2014.

While its mid-cap exposure helps during rallies, the fund contains downside during seesawing markets by cutting down on equity exposures. Thus, in 2013, it had 91-93 per cent in equities for a good part of the year. Similarly, it held less than 95 per cent in equities for some time during the choppy markets of 2015.

The fund prefers banks and software for its top sectors across market cycles. In 2014, for instance, it did not load up on the cyclical automobiles or auto ancillaries space, which was the flavour of the season.

It also increases exposure to defensives, such as consumer non-durables or pharma during uncertain times.

Portfolio moves

Since mid-2015, HDFC Capital Builder has been maintaining equity exposure at around 95 per cent. While it held about 28 per cent in mid-cap stocks earlier this year, the fund has gradually brought down mid-cap holdings to 23 per cent now, with an eye on soaring valuations in the space.

Since January 2016, the fund has increased its stakes in banking stocks by 5 percentage points to 26 per cent, eyeing better loan growth prospects from falling interest rates and a recovering domestic economy. The fund added to its holdings in HDFC Bank, SBI and YES Bank.

At the same time, Brexit and dim global prospects saw the fund shedding software stocks, such as Infosys.

Overall, holdings in the software space have come down by 3-4 percentage points since January.

While stakes in consumer non-durables have been gradually brought down in the last two years due to expanding valuations, pharma sector exposure has remained consistent at 7-8 per cent in this period.

The latest portfolio additions include Dilip Buildcon, GAIL and Bharti Infratel.

Recent exits include Carborandum Universal, Coal India, and Petronet LNG.

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