Flexi-cap Funds have the flexibility to invest across market cap segments viz. large-cap, mid-cap, and small-cap, without any upper or lower limit. Such a strategy provides fund managers with more leeway in building the portfolio.

The Flexi-cap Funds category has gained a lot of attraction among investors due to their ability to perform well during upward as well as downward market trends. Consequently, the category has witnessed massive inflows over the past few months.

PGIM India Flexi Cap Fund is one such Flexi Cap Fund that witnessed a significant rise in its corpus in the last one year. The fund follows an active investment strategy to identify high-growth potential opportunities.

Graph 1: Growth of Rs 10,000 if invested in PGIM India Flexi Cap Fund 5 years ago

Past performance is not an indicator of future returns
Data as on March 29, 2022
(Source: ACE MF) 

The erstwhile PGIM India Diversified Equity Fund is now known as PGIM India Flexi Cap Fund. It is a dynamic equity scheme having the flexibility to invest across large-cap, mid-cap, and small-cap stocks in any proportion. Incepted in March 2015, PGIM India Flexi Cap Fund recorded ordinary performance in its initial years, wherein it managed to generate returns in line with the benchmark. Nonetheless, the fund has witnessed a turnaround performance in the last couple of years. The market crash of 2018 and 2020 provided it with an opportunity to add some quality businesses in the mid-cap and small-cap segment. This, along with its inclination towards large-caps, enabled it to benefit from the current broad-based market rally. Over the last 5-year period, PGIM India Flexi Cap Fund has grown at a compounded annualised rate of around 19.2%, as against 14.5% CAGR delivered by its benchmark Nifty 500 – TRI index, thus generating an alpha of nearly 5 percentage points in CAGR. Bolstered by its recent superior performance, the fund’s AUM has multiplied nearly seven times in the last one year and is currently at about Rs 3,637 crore.

Table: PGIM India Flexi Cap Fund’s performance vis-á-vis category peers

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	120	47.52	78.94	31.15	21.52	20.03	24.54	0.30
Parag Parikh Flexi Cap Fund	20,130	32.52	54.46	26.61	21.21	18.12	19.15	0.31
PGIM India Flexi Cap Fund	3,637	30.00	59.62	26.29	19.15	16.46	22.81	0.28
UTI Flexi Cap Fund	24,043	16.40	44.24	19.62	16.87	13.91	21.76	0.22
IDBI Flexi Cap Fund	377	30.51	44.16	19.56	15.33	12.45	20.07	0.22
Union Flexi Cap Fund	935	24.07	45.96	19.53	15.01	11.40	21.10	0.21
Canara Rob Flexi Cap Fund	6,763	23.25	41.67	19.20	17.43	13.62	19.77	0.22
Axis Flexi Cap Fund	10,460	21.08	33.99	18.98	—	—	18.35	0.23
JM Flexicap Fund	186	22.12	39.86	18.96	14.57	14.40	21.30	0.20
DSP Flexi Cap Fund	7,349	16.35	39.30	17.89	15.05	13.35	21.83	0.20
NIFTY 500 – TRI		22.84	46.48	16.43	14.50	12.88	22.33	0.17

Returns are point to point and in %, calculated using Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on March 29, 2022
(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.

PGIM India Flexi Cap Fund has registered superior growth in the last couple of years. In the last 1-year and 2-year period, the fund has generated outstanding returns of 30% (absolute) and 59.6% (CAGR), respectively. This superior performance has enabled it to generate a remarkable lead over the benchmark Nifty 500 – TRI and most of its prominent peers. PGIM India Flexi Cap Fund now stands among the top quartile performers across time periods. Over the longer 3-year, 5-year, and 7-year period its outperformance over the benchmark has been in the range of around 3.5-10 percentage points on a CAGR basis.

PGIM India Flexi Cap Fund’s recent outperformance has enabled it to rank high in terms of risk-adjusted returns. Though the volatility registered by the fund (22.81%) is slightly higher than the category average (21.37%), it is largely in line with the benchmark (22.33%), while its risk-adjusted return as denoted by Sharpe Ratio (0.28) is among the highest in the Flexi-cap fund category and far ahead of the benchmark.

Investment strategy of PGIM India Flexi Cap Fund

Being a Flexi Cap Fund, PGIM India Flexi Cap Fund has the mandate to invest a minimum of 65% of its assets in equity and equity-related instruments with no restriction on market cap allocation. The fund has the flexibility to increase or decrease exposure to large-cap, mid-cap or small-cap stocks as per the market dynamics and the fund manager’s view on the market. Accordingly, the fund managers invest across industries, sectors, and the market cap spectrum. PGIM India Flexi Cap Fund seeks to actively manage a well-diversified portfolio of strong growth companies with sustainable business models by utilising the bottom-up approach. It lays high emphasis on RoCE and ROE to identify high-growth companies.

While picking stocks for the portfolio, the fund managers give consideration to price-to-earnings, price-to-book value, and price-to-sales ratios, as well as growth, margins, asset returns, and cash flows, among other factors. They conduct in-house research in order to identify various investment opportunities. PGIM India Flexi Cap Fund is benchmark agnostic in its approach and investments are made as per the fund manager’s outlook.

Following an active investment strategy, many stocks in the portfolio are held for a shorter time period. Accordingly, PGIM India Flexi Cap Fund’s portfolio turnover ratio is usually on the higher side though it has significantly reduced the churning rate in the last one year. Notably, the fund has recorded a turnover ratio in the range of 130% to 170% in the last 12 months, which is a significant drop compared to the ratios seen in the previous years.

Graph 2: Top portfolio holdings in PGIM India Flexi Cap Fund

Holding in (%) as on February 28, 2022
(Source: ACE MF) 

PGIM India Flexi Cap Fund usually holds a well-diversified portfolio of about 40 to 45 stocks. As of February 28, 2022, the fund held 51 stocks in its portfolio, reasonably diversified across sectors. The top 10 holdings accounted for about 35.2% of the portfolio. Large-cap names like Infosys, HDFC Bank, ICICI Bank, L&T, and Axis Bank form part of its top 10 holdings. Notably, 5 out of the top 10 stocks in the portfolio are Banking & Finance names. PGIM India Flexi Cap Fund has limited the allocation in its top holdings to well under the 10% mark.

In the last one year, PGIM India Flexi Cap Fund benefitted the most from its investments in Coforge, Infosys, SKF India, and ICICI Bank. It has also booked significant profit in stocks like Bata India, Alkem Laboratories, ICICI Prudential Life Insurance Company, Balrampur Chini Mills, MTAR Technologies, Chambal Fertilisers and Chemicals, APL Apollo Tubes, Dixon Technologies, SRF, SIS, Subros, among others.

PGIM India Flexi Cap Fund’s portfolio is skewed towards Financials, Infotech, and Engineering, with a combined allocation of 57.7%. Pharma, Cement, Oil & Gas, and Consumption are the other prominent sectors with an exposure of about 3% to 6% in each. Telecom, Auto, Construction, Healthcare Services, Metals, and Textiles figure among the other core sectors in the fund’s portfolio. The top 5 sectors in PGIM India Flexi Cap Fund’s portfolio together account for around 63.6% of its assets. The fund’s portfolio is fairly diversified across cyclical, defensive, and sensitive sectors.

Suitability

PGIM India Flexi Cap Fund has shown turnaround performance in recent years by timely identifying various opportunities in the large-cap, mid-cap, as well as small-cap space. The fund currently holds significant allocation to stocks in the mid-cap and small-cap segment. Therefore, its performance may deviate significantly from its popular Flexi cap peers that hold higher exposure to stocks in the large-cap segment.

As the fund follows an active investment strategy its portfolio could be prone to high volatility. Despite this, PGIM India Flexi Cap Fund has ensured that the risk is well within limits thereby delivering superior risk-adjusted returns for its investors. The fund has done well under its fund manager Mr Anirudha Naha who took charge of the fund in 2018.

PGIM India Flexi Cap Fund is suitable for investors looking for an actively managed fund in the Flexi-cap category with a longer time horizon of at least 5 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