Equity fund investors have rarely had it so ironical. Last year at this time they were jubilant spectators to an astonishing surge in equity markets that saw them double their money in less than 12 months. A year later they have seen more than 25% of their gains shaved off. While there is nothing startling about this to the seasoned equity fund investor, it is nevertheless disquieting to investors with a low to moderate risk profile.

At Personalfn we have seen a lot of investors who have been distraught at the volatility in stock markets over the last few months. This got us to look at funds that did reasonably well during the bull run last year and redeemed themselves equally well during the slide over the last 3 months. One fund that caught our eye was HDFC Capital Builder.

HDFC Capital Builder is a fund that has for long lived in the shadow of its more renowned siblings  HDFC Equity and HDFC Top 200. However, the fund is now emerging as a force to reckon with and its performance over the last 12 months has investors sitting up and taking notice.

HDFC Capital Builder is a value-style diversified equity fund investing in midcaps (benchmark S&P CNX 500). Value style investing involves identifying good stocks that trade at a steep discount to their fair value. While the value fund category in the country is still evolving, it is a subject of some investor attention given its ability perform in a bearish market phase.

Taking on the competition¦

Growth Funds	NAV (Rs)	1-Mth	6-Mth	1-Yr	3-Yr	Incep.	YTD
MAGNUM GLOBAL	11.84	10.1%	8.8%	85.5%	32.7%	5.9%	-
HSBC EQUITY GR	27.09	6.7%	-0.3%	84.4%	NA	82.2%	-0.14%
RELIANCE GROWTH GR	75.86	9.1%	1.8%	74.0%	59.5%	25.7%	-4.52%
SUNDARAM SELECT MIDCAP	24.31	12.3%	4.2%	71.3%	NA	56.0%	-8.64%
HDFC CAPITAL BLD. G	23.84	7.9%	4.3%	69.8%	37.1%	14.3%	-1.91%
DEUTSCHE ALPHA EQUITY G	19.68	5.2%	-6.0%	66.6%	NA	22.3%	-
TATA EQUITY OPPORTUNITY A	19.84	4.7%	-5.1%	65.3%	32.9%	5.4%	-9.15%
FRANKLIN INDIA PRIMA FUND G	74.93	8.1%	1.4%	63.7%	67.5%	20.7%	-8.04%
ALLIANCE EQUITY G	54.84	4.9%	-2.1%	63.0%	34.2%	32.4%	-5.14%
MAGNUM MULTIPLIER 93	14.35	6.4%	-4.9%	62.8%	23.5%	5.0%	-22.10%

(Data sourced from Credence Analytics.)
(NAV data as on July 29, 2004. Growth over 1-Yr is compounded annualised)

From HDFC Capital Builder's perspective the fund's value style has helped it tide over the recent market slide when it fell a lot lower than the competition. Typical of its style, value funds are slow both on the rise and during the fall in stock markets. Over 1-Yr, HDFC Capital Builder (up 69.8%) ranks among the top 5 funds in the country. HDFC Capital Builder's performance overshadows that of its more popular siblings, HDFC Equity (51.7%) and HDFC Top 200 (56.9%), which did not even make to the top 10 funds.

One parameter on which HDFC Capital Builder comes out tops is year-to-date (YTD) returns. Year-to-date growth indicates performance of the fund during the current calendar year. HDFC Capital Builder's YTD (-1.91%) is the best in the table. All other funds have fallen a lot harder over the last 7 months. The fund's investment style has enabled it to better negotiate the sharp fall in equity markets.

This only highlights the need to diversify across a mix of styles (growth and value funds) as well as market cap (large and mid/small cap funds). Given the volatility in markets no one can be sure where the next rally is going to be coming from. Investors need to be invested across the spectrum of equity funds to be in a position from where they can benefit from an upturn in stock markets across any segment.

 

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