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Even amidst the sharp market volatility over the past year, some funds have done well. This set includes Parag Parikh Long Term Equity. The fund has clocked a one-year return of 11.2 per cent — higher than the 8.5 per cent return of its benchmark (Nifty 500 TRI) and the 3.7 per cent average return of its multi-cap category.
A value-focussed investment approach and a diversified portfolio across local and foreign stocks have helped the scheme put up a good show. Over the long term, too, the fund’s performance has been impressive with annualised returns of 15.6 per cent over the past five years — better than the benchmark returns and the category average. Investors can buy the fund through the SIP mode as part of their core portfolio for the long run.
Adherence to value-investing often sees Parag Parikh Long Term Equity take conservative positions. For instance, the fund increased its cash holdings, debt and arbitrage positions from about 9 per cent of the corpus as of December 2016 to about 24 per cent as of June 2018; as of March 2019, such holdings account for about 20 per cent of the corpus.
The fund also makes good use of its multi-cap mandate to shift allocations across market-caps. While large-caps make up the chunk of the fund’s domestic portfolio across market conditions, it also has exposure to smaller stocks that could give a stronger kicker to returns. Major large-cap holdings include HDFC Bank, and Bajaj Holdings and Investment (6-8 per cent of the corpus), while smaller stocks in the portfolio include Mahindra Holidays and Maharashtra Scooters.
High when market is low
When smaller stocks run up sharply and become pricey, the fund pares its holdings in such stocks, like it did last year.
This could lead to short-term underperformance in raging bull markets.
But when the market turns weak, the fund doesn’t take sharp knocks and is well-positioned to make a comeback by deploying money in attractively valued stocks.
This approach is likely to come handy in market conditions such as now.
Another key differentiator that acts as a good diversifier is the fund’s exposure to high-quality foreign stocks. This helps when the Indian market is weak while foreign markets are doing well.
Exposure to foreign stocks is now about 28 per cent of the corpus — the chunk of it (about 10 per cent) in Alphabet (Google’s parent company). In January 2019, the fund bought some shares of Amazon (0.7 per cent of the corpus now).
Despite foreign stock holdings, the scheme is categorised as an equity-oriented fund (with attendant tax benefits for investors), given that at least 65 per cent of its corpus stays in Indian stocks and arbitrage positions.
Low on cost
The fund picks stocks using a bottom-up investing strategy focussing on individual companies. A buy-and-hold approach in a portfolio of 30-40 stocks keeps the fund’s expense ratio below the category average. The weighted average expense ratio (2.16 per cent for the regular plan and 1.41 per cent for the direct plan) as per the March 2019 fact-sheet will moderate from April, following SEBI’s norms.
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