A dual investment approach can work wonders for one’s portfolio returns in any market condition. It can reward investors seeking long term capital appreciation from a cautiously managed portfolio offering exposure across asset classes, market caps or geographies.

Parag Parikh Long term Equity Fund (PPLTEF) is one such unique multi cap fund that seeks to offer smart growth potential with value investing approach, diversification across market caps and at the same time offer exposure to global giants like Alphabet, Facebook and Amazon. Its diversified approach has helped it mitigate volatility across market phases.

The fund was earlier known as Parag Parikh Long Term Value Fund and was categorised as value fund. Although the fund was categorised as a multi cap fund last year, it continues to follow value based approach while creating a diversified equity portfolio. The fund has a corpus of around Rs 2,205 crore.

Mr Rajeev Thakkar is the equity fund manager while Mr Raunak Onkar is the dedicated fund manager for overseas investment. Mr Raj Mehta is responsible for the fixed income investment component of the portfolio.

Graph 1: Growth of Rs 10,000 if invested in PPLTEF 5 years ago

 Data as on October 22, 2019
(Source: ACE MF)

Had you invested Rs 10,000 in PPLTEF five years back on October 22, 2014, it would now be worth Rs 18,413 (as calculated on October 22, 2019). This translates into compounded annualised growth rate of 12.99%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark Nifty 500 – TRI would have grown to Rs 15,569 (a CAGR of 9.26%). As we can see in the chart alongside, the fund has maintained significant lead over the benchmark in the last five years.

Graph 2: PPLTEF year-on-year performance

 *YTD as on October 22, 2019
(Source: ACE MF)

Launched in May 2013, PPLTEF has a track record of over six years. The year-on-year performance comparison of PPLTEF vis-à-vis its benchmark Nifty 500 – TRI shows that the fund outperformed the index in 4 out of last 6 calendar years. The fund trailed the index in CY 2017, whereas in CY 2016 its performance was nearly in line with the benchmark. Even in CY 2018 when the benchmark registered negative returns PPLTEF managed to generate positive returns for its investors. In the current year as well the fund has continued with enhanced returns over the benchmark.

Table 1 :PPLTEF performance vis-a-vis category peers

Returns are on a rolling basis and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 22, 2019
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

PPLTEF has outpaced the benchmark and average category peers across rolling periods, the exception being 5-year rolling period where its performance was nearly in line with the category average.

The fund stands among the top performers on a 1-year and 2-year rolling period basis, while on 3-year and 5-year rolling return basis it stands ahead of many other funds in the multi cap category. Kotak Standard Multicap Fund, JM Multicap Fund and Edelweiss Multi-Cap Fund were the top performers in the category.

In terms of risk-return parameters, the fund registered low volatility as compared to benchmark and peers. Regardless, it managed to reward investors with superior risk-adjusted returns.

Investment strategy of PPLTEF

PPLTEF is a diversified equity scheme which aims to invest across sector, market capitalisation and geography. While it enjoys flexibility to invest in overseas equities not exceeding 35% of its assets, it needs to invest an average of 65% of its corpus in listed Indian equities in order to benefit from the favourable capital gains tax treatment accorded to equity schemes.

The fund manager follows an active investment strategy primarily based on fundamental research driven bottom-up stock selection approach. To select stocks for the portfolio it focuses on areas such as growth opportunities, sustainable competitive advantage, industry structure, margins, quality of the management and protection of minority shareholders.

Parag Parikh mutual fund is known for its value investment style. Accordingly the fund managers endeavour to purchase stocks that represent a discount to their fair intrinsic value in an effort to preserve capital and generate superior growth in the long run.

Graph 3: PPLTEF portfolio allocation and market capitalisation trend

 Holding (in %) as on September 30, 2019
(Source: ACE MF)

PPLTEF not only offers diversification in stocks across market cap segment, but also invests nearly a third of its corpus in foreign securities, which is rare among Indian equity funds. Its portfolio allocation to large caps has hovered in the range of 35% to 45%, while the mid-cap exposure in the portfolio has been at around 10% to 15%. Remarkably the allocation to small caps has been in the range of 10% to 20%. Its exposure to offshore securities has ranged 25% to 30% over the last one year, while the allocation to cash and equivalents has been well within the 10% mark.

Graph 4: PPLTEF top portfolio holdings

Holding (in %) as on September 30, 2019
(Source: ACE MF)

As on September 30, 2019, PPLTEF held a compact portfolio of 27 stocks of which 23 are domestic equities. The top 10 stocks amount to 60.9% of the portfolio which includes three overseas equities. Alphabet Inc. has been the top holding in the portfolio with an allocation of 10.1%, followed by HDFC Bank at 9.6% and Bajaj Holdings & Investment at 7.8%. Rest of the stocks in the top 10 holdings have allocation in the range of 4-6% each.

While the fund’s portfolio is spread across few selected sectors, it takes concentrated bets on attractive looking sectors offering value advantage. Currently the fund holds major exposure to Infotech (23%), Banks (20.5%) and Finance (13.6%). Pharmaceuticals, Auto & ancillaries, Retail and Consumption are the other prominent sectors in the portfolio.

Top contributors

Among the domestic equities in the portfolio, Maharashtra Scooters contributed the most to the fund’s return in the last one year with a weighted return of 1.6%. ICICI Bank, Zydus Wellness, Bajaj Holdings & Investment were the other top contributors to the portfolio gains.

On the other hand stocks like Tata Steel, Persistent Systems, and Balkrishna Industries eroded some of its gains in the last one year.

Suitability of PPLTEF

PPLTEF’s focus across market caps and geographies enables it to remain flexible enough to deal with the changing market sentiments. Its bet on fundamentally sound undervalued stocks has benefited the fund so far. As the fund largely follows value investment approach there may be an extended phases of underperformance before the true potential of the stock blossoms. Further, the compact portfolio size and exposure to global equities means that some of its prominent holdings may come under pressure during uncertainties in domestic or global markets and have an impact on its performance. However its cautious investment approach with long term view makes it suitable for investors having moderately high risk appetite and longer investment horizon of at least five years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here.