A quarter of a century is a long, long time. With the Indian mutual fund industry slowly coming of age, a handful of equity mutual fund schemes have turned 25. Today, we will look at HDFC Capital Builder Value Fund, a fund that started its journey on Feb 01, 1994. Over the next 9000 odd days, this investment product has grown by leaps and bounds. This is the 13th oldest surviving equity fund of the industry.
While mutual funds were not as popular as an investment avenue at the time of launch (mid-90s), HDFC Capital Builder Value Fund today finds itself in a different world. There is a paradigm shift in how investors view equity mutual funds now. Since inception, the fund has generated 14.29% (as on March 8, 2019) and this means Rs 1 lakh invested way back in 1994 has become Rs 28 lakh. If you did systematic investments of Rs 1,000 per month, the Rs 3 lakh total amount invested in these 25 years would have become over Rs 40 lakh. RupeeIQ takes a detailed look at HDFC Capital Builder Value Fund.
The origins – HDFC Capital Builder Value Fund began as Zurich India Capital Builder Fund. When HDFC MF acquired Zurich India MF business in 2003, this scheme came under HDFC MF fold. Since June 2003, the scheme has been with the same owner. Over the years, the scheme has grown to a moderate size of Rs 4,100 crore. With effect from May 23, 2018, HDFC Capital Builder Value Fund was recategorised as a value fund. The word ‘value’ was added to HDFC Capital Builder Fund.
Fund’s value bias – According to HDFC MF, the scheme’s approach is opportunity dependent, primarily buying value stocks. It chooses to focus on undervalued stocks that are trading below intrinsic value, as measured by potential earnings or asset values, and/or future cash flow growth.
HDFC Capital Builder Value Fund does not consciously seek to be contrarian. “However, many opportunities would require a contrarian view. The scheme may own good businesses going through a temporary difficult period as they usually present an attractive entry point,” says the fund-house.
The scheme aims to maintain a minimum of 50% of the equity portfolio in stocks where trailing P/E (Price/Earnings) or trailing P/B (Price /Book Value) Ratio is less than Median P/E or P/B of stocks in the NSE 500 Index.
Do remember value-oriented funds don’t do as well as growth strategic oriented funds when the market is rising.
Cap bias – The scheme follows a multi-cap investment strategy. It is benchmarked to the Nifty 500. The fund attempts to have good representation across market capitalisations based on opportunity and risk-reward.
Sector bias – No. The fund aims to have a portfolio which is well diversified across sectors. The scheme has historically maintained exposure to at least 13 sectors in the benchmark (Nifty 500) over the last four fiscal years.
The fund has 50-55 stocks usually.
Fund manager – Since March 20, 2017, HDFC Capital Builder Fund is managed by Miten Lathia only in place of duo – Miten Lathia and Chirag Setalvad. Lathia also manages HDFC Dynamic PE Ratio Fund of Funds.
The fund has seen a lot of fund manager changes. This is normal for a fund that existed for 25 years. In the last 14-15 years, it has been managed by managers like Tushar Pradhan, Chirag Setalvad, Rakesh Vyas.
Fund returns – The fund has shown resilient performance across market volatility periods. Be it Tech bubble meltdown (2000-2001), post US crisis recovery (2009-2010), or the oil price correction in 2015, HDFC Capital Builder Fund has beaten benchmark. Look at the image below to get an idea.
The fund has practiced risk management through portfolio diversification. It has delivered out-performance in 19 out of 24 financial years with consistent outperformance in last 11 years (up to fiscal year ended March 2018). Take a look at the slide.
Fund consistency – A fund having large outperformance in a particular financial year may not sustain the same year after year. This happens all the time in the MF industry. What works today is unknown. So, consistent funds may not be the highest in terms of quantum of returns delivered but would have delivered above median returns during most points in time. This exactly what you want as an investor as it gives you a smooth return experience.
In a three and five year CAGR rolling returns on a daily basis analysed for the past five years for each day falling during the period 31st January 2014 to 31st January 2019, HDFC Capital Builder Value Fund outperformed the category median in 99.8% and 100% instances for three year and five year investment horizon respectively.
Fund fees – In respect of each purchase / switch-in of units in HDFC Capital Builder Value Fund , an exit load of 1% is payable if units are redeemed/switched-out within one year from the date of allotment. No exit load is payable if units are redeemed/switched-out after 1 year from the date of allotment.
RupeeIQ take – We like the fact that the fund’s outperformance over benchmark has come without taking excessive risk. This can be credited to bottom-up value stock picking across sectors. As a value-oriented fund, you need to give this scheme seven to 10 years to realise the full benefits. On the flip side, we do not like the fact that the fund is slightly expensive. From a fund that itself is now an institution given that it is 25 years old, one can expect lower costs. From a value fund perspective, HDFC Capital Builder Value Fund is an experienced scheme compared to younger ones like Invesco India Contra Fund, Kotak India EQ Contra Fund and L&T India Value Fund.
Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.