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Suresh Krishnamurthy

INVESTORS in HDFC Capital Builder should consider reducing their exposures to the fund. Having trailed or mirrored the performance of S&P CNX 500 for most part of 2003, the returns of Capital Builder has risen sharply since end- October.

However, given the relative inconsistency in performance and the change in the investment strategy compared to what was practised in earlier years investors can consider booking profits by reducing exposure to the fund.

Performance: Till end-October 2003, HDFC Capital Builder was trailing S&P CNX 500 in terms of one-year performance. However, in the period since October 2003, the performance of the fund has improved significantly vis-à-vis S&P CNX 500. The fund's performance now is significantly ahead of that of its benchmark over the one-year time frame.

Over the last three years too, the performance is better to that of the benchmark. However, there is a catch. The fund's performance in the last 12 months has been built on an investment strategy that is largely different from what it had adopted since 2000.

Since 2000, when the fund went open-ended, the fund adopted the strategy of investing in businesses with sound fundamentals and generally avoided cyclical stocks. Its portfolio stood out among the crowd of diversified equity funds.

However, over the past 12 months, the strategy has been diluted in favour of mid-cap stocks and stocks of cyclical companies. As such, the portfolio is not unique and resembles that of many other diversified equity funds.

This means the long-term performance is largely not relevant. In addition, it also means that the last 12-month performance has to be compared to that of other diversified equity funds. In such a comparison, the fund does not stand out in relation to some of its peers.

Nevertheless, investors can hold on to a part of their exposures as the momentum in stock prices could continue to add to the performance.

Portfolio allocation: The fund is relatively small, with net assets under management of about Rs 38 crore. It was largely invested at the end of October with less than five per cent parked in cash and cash equivalents. The fund also did not hold concentrated exposure to any of the sector or stocks.

The top five sectors account for about 50 per cent of net assets at the end of October 2003. The top five stocks accounted for about 36 per cent of net assets.

Mid-cap stocks in the portfolio include Cummins India, Aventis Pharma, Swaraj Mazda, Tata Telecom and Vijaya Bank.

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