Mutual Funds

Parag Parikh Long TermValue Fund: Local presence, global footprint

Anand Kalyanaraman | Updated on January 13, 2018



Exposure to overseas stocks and a willingness to bet big set this fund apart

The market is again within kissing distance of its peaks. Time perhaps to double down on funds that go by time-tested value investing approaches.

Parag Parikh Long Term Value Fund is a fine choice here. This multi-cap fund invests in quality stocks available at reasonable or attractive valuations. Besides being market-cap agnostic, the fund invests nearly a third of its corpus in foreign stocks.

Such significant overseas exposure is rare in the Indian fund universe. Still, the fund qualifies as an equity fund, eligible for favourable tax treatment, as at least 65 per cent of its corpus is in Indian equities.

While waiting for the right opportunities, the fund holds cash, debt and arbitrage positions. A buy-and-hold strategy in a compact portfolio of about 30 stocks keeps the fund’s portfolio turnover quite low. These strategies have paid off quite well for this fund, which was launched in May 2013.

Its annualised return of more than 21 per cent for regular plans over the past three years comfortably trumps the benchmark Nifty 500’s 17.5 per cent. The scorecard would have looked better but for the relatively weak run over the past year. The fund reduced exposure to some pricey smaller stocks such as Maharashtra Scooters that continued to run up, and took some fresh large bets such as Bajaj Holdings and Investment that are yet to pay off.

Currently, less than 30 per cent of the fund’s corpus is in smaller Indian stocks, from more than 45 per cent a year ago. Indian large caps in the portfolio have grown from under a fifth to more than a third. This contributed to its lower 22 per cent return over the last year in comparison to the benchmark’s 28 per cent return.

Value focus

A year is a short time to assess performance and the fund’s calls could prove right. Its value focus provides comfort and so does the ‘skin in the game’ of promoters and employees — they hold more than 13 per cent of the fund. Still, investors need to have some stomach for risk — the fund is young, it takes big bets on even small stocks and invests abroad, too. The foreign exposure though can be a good risk diversifier and return generator with marquee stocks such as Alphabet (Google), UPS and Apple.

The fund hedges most of the foreign exchange risk arising from such stocks.

Recently, Parag Parikh Long Term Value Fund reduced its expense ratio by 0.2 percentage points to 2.3 per cent for regular plans and 1.8 per cent for direct plans (excluding service tax). This should help reduce concerns about the fund’s high expense ratio and improve returns.

Currently, private sector banks, finance companies, technology and software firms are the top sectors in the fund’s portfolio. The top stock holdings are Alphabet (about 13 per cent of the corpus), Bajaj Holdings and Investment (7.5 per cent) and HDFC Bank (7.4 per cent).

Almost 97 per cent of the corpus is in equities.

Published on February 26, 2017

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