Mutual Funds

Parag Parikh Flexi Cap Fund: Proving its mettle

Anand Kalyanaraman BL Research Bureau | Updated on January 02, 2021 Published on January 02, 2021

The fund’s category change does not alter its investment process that has delivered strongly

On December 14, 2020, PPFAS Mutual Fund changed the name of Parag Parikh Long Term Equity Fund to Parag Parikh Flexi Cap Fund. Also, the category of the scheme was changed from multi-cap to flexi-cap. These changes were done to comply with SEBI’s circulars earlier in the year regarding the mandate for multi-cap funds and the introduction of flexi-cap funds.

Staying in the multi-cap category would have entailed rejig of the scheme’s portfolio to have at least 25 per cent of the corpus each in large-, mid- and small-cap stocks. The change to a flexi-cap strategy gives the scheme the flexibility to invest wherever value and opportunities are available without restrictions.

This go-anywhere, do-anything flexibility, earlier available as a multi-cap scheme, will now be available as a flexi-cap fund.

So, effectively, there will be no change in the scheme’s investment process, which has held it in good stead over the years and made it a top performer.

 

Standout show

In 2020, a year marked by firsts, a virus-induced stunning crash and then, a liquidity- and hope-driven dizzying rally, Parag Parikh Long Term Equity (now Parag Parag Flexi Cap) delivered a standout performance. Its one-year return of about 30 per cent is far ahead than the 16.5 per cent return of its benchmark Nifty 500 TRI and the average 14 per cent return of the multi-cap category.

Not only did the fund contain losses well in the March 2020 quarter when the market crashed, it also participated strongly in the market surge that followed. The scheme’s ability to contain downsides well was reflected earlier, too, for instance, during the weak market in 2018. Also, it has done well during earlier upsides such as that in 2019. This combination of low downside and high upside has seen the fund race ahead of its benchmark and the category average — with annualised returns of 14-15 per cent over three and five years, and about 18 per cent since its inception in May 2013.

Glocal investing

The strong show has been driven by a combination of high-quality local and global stocks — a glocal investing strategy. The fund generally deploys about a third of its corpus in foreign stocks; this has given a kicker to returns, with US tech stocks, in particular, having a strong run. The scheme hedges most of its foreign currency risk exposure.

The scheme, by investing at least 65 per cent of its corpus in domestic equity, qualifies as an equity fund and gets investors favourable taxation on gains on sale.

Bottom-up investing

Next, the fund’s bottom-up investing strategy — focussing on high-quality stocks rather than on macros — and value-investing approach has benefited it in the long run. It also takes sizeable cash positions if it perceives stocks to be expensive, and shifts allocation among asset classes, based on market conditions. The major domestic holdings (about 5 per cent or more of corpus as of November 2020) are ITC, Persistent Systems, Bajaj Holdings, IEX and Hero MotoCorp. Amazon (8.5 per cent) and Alphabet (6.3 per cent) are the largest foreign holdings. Since March 2020, the scheme has cut its exposure to banking and hospitality stocks while increasing exposure to auto and software stocks.

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Published on January 02, 2021
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