PGIM India Flexi Cap Fund: Growing through an Actively Managed Diversified Portfolio

Oct 27, 2022

Listen to PGIM India Flexi Cap Fund: Growing through an Actively Managed Diversified Portfolio

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Flexi-cap funds follow a dynamic investment approach and have the flexibility to invest across market cap segments, as per the conviction of the fund manager. In the absence of any limit or restriction, this category offers the fund manager complete freedom to decide on the market cap allocation to be held in the portfolio and take advantage of changing dynamics to generate higher alpha for investors.

However, the key is to select well-managed funds that focus on picking high-quality stocks and have the potential to reward investors in the long run.

PGIM India Flexi Cap Fund is a top quartile performer in the Flexi-cap fund category that has generated superior gains for its investors and also stands out in terms of risk-adjusted returns by following an active investment strategy.

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

PGIM India Flexi Cap Fund holds a dynamic investment mandate that offers it the flexibility to invest across large-cap, mid-cap, and small-cap stocks in any proportion without any constraints. Incepted in March 2015, PGIM India Flexi Cap Fund was an ordinary performer in its initial years wherein it managed to generate returns in line with the benchmark. Due to its significant exposure to stocks in the lower market cap segment, the fund’s performance suffered during the mid and small-cap crash of 2018. Nonetheless, PGIM India Flexi Cap Fund witnessed a turnaround performance after the shift in sentiments favouring the rally in mid and small-caps. Moreover, 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 broad-based market rally seen between 2020-2021. Notably, PGIM India Flexi Cap Fund has done well under its fund manager Mr Anirudha Naha who took charge of the fund in 2018. Over the last 5-year period, PGIM India Flexi Cap Fund has grown at a compounded annualised rate of around 16.1%, as against 12.1% CAGR delivered by its benchmark Nifty 500 – TRI index, thus generating an alpha of about 4 percentage points in CAGR.

Graph 1
Past performance is not an indicator of future returns
Data as on October 25, 2022
(Source: ACE MF)
 

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 640 9.62 43.12 37.06 19.36 20.52 25.33 0.35
PGIM India Flexi Cap Fund 5,085 -3.61 27.81 25.44 16.08 15.55 23.65 0.26
Parag Parikh Flexi Cap Fund 26,033 -1.86 25.18 24.70 17.99 17.20 20.46 0.28
Franklin India Flexi Cap Fund 10,002 1.51 32.71 21.94 12.87 13.18 24.09 0.21
HDFC Flexi Cap Fund 29,749 10.37 38.90 20.95 12.95 14.25 25.44 0.20
Union Flexi Cap Fund 1,286 -0.71 25.81 20.13 13.63 12.77 21.82 0.21
Canara Rob Flexi Cap Fund 8,243 -2.09 23.49 19.32 14.63 14.11 20.52 0.22
UTI Flexi Cap Fund 25,787 -9.51 21.47 19.26 14.84 13.37 22.98 0.21
Edelweiss Flexi Cap Fund 1,019 1.78 27.48 18.76 13.42 14.28 22.18 0.20
IDBI Flexi Cap Fund 374 1.91 27.64 18.68 13.62 12.61 21.47 0.21
NIFTY 500 - TRI 0.12 25.84 18.39 12.11 13.26 23.16 0.20
Returns are point to point and in %, calculated using Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 25, 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 been a top-quartile performer in the Flexi Cap Fund category. In the last 2-year and 3-year period, the fund has generated outstanding compounded annualised returns of 27.8% and 25.4%, respectively, which 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 frames, except for the last one-year period. Over the longer 5-year and 7-year periods, PGIM India Flexi Cap Fund's outperformance over the benchmark has been in the range of around 2-4 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 is slightly higher than the category average, it is nearly in line with the benchmark, while its risk-adjusted return, as denoted by Sharpe Ratio (0.26), is among the highest in the Flexi-cap fund category and far ahead of the benchmark.

PGIM India Flexi Cap Fund: Growing through an Actively Managed Diversified Portfolio
Image source: www.freepik.com - photo created by Freepik
 

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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, signifying a higher churn rate in the portfolio. Notably, the fund has recorded a turnover ratio in the range of 130% to 150% in the last 12 months.

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

Graph 2 Graph 2
Holding in (%) as of September 30, 2022
(Source: ACE MF)
 

PGIM India Flexi Cap Fund usually holds a well-diversified portfolio of about 40 to 50 stocks. As of September 30, 2022, the fund held 48 stocks in its portfolio, reasonably diversified across market caps and sectors. The top 10 holdings accounted for about 39.4% of the portfolio. ICICI Bank, HDFC Bank, Mahindra & Mahindra, NTPC, Axis Bank, Cholamandalam Investment & Finance Company, and Infosys currently figure among the top 10 holdings of the fund. The fund has limited the allocation in most of its top holdings to under 5%.

In the last one year, PGIM India Flexi Cap Fund benefitted the most from its holdings in Esab India, SKF India, ICICI Bank, and Siemens. At the same time, its exposure to Birla Corporation, Can Fin Homes, Infosys, Ultratech Cement, and Persistent Systems eroded some of its gains.

PGIM India Flexi Cap Fund's portfolio is skewed towards Financials, Engineering, Auto & Auto Ancillaries, and Infotech having a combined allocation of 64.2%. Cement, Consumption, Consumer Durables, and Power are the other prominent sectors with an exposure of about 3% to 5%. The top 10 sectors in PGIM India Flexi Cap Fund's portfolio together account for around 80.7% of its assets. The fund's portfolio is fairly diversified across cyclical, defensive, and sensitive sectors.

 

Suitability

PGIM India Flexi Cap Fund holds a well-diversified portfolio of stocks spread across market caps and sectors. It has done well to timely identify various opportunities in the large-cap, mid-cap, as well as small-cap space. Notably, the fund's performance may deviate significantly from its popular Flexi-cap peers that hold higher exposure to stocks in the large-cap segment.

As PGIM India Flexi Cap Fund follows an active investment strategy, its portfolio could be prone to high volatility. Despite this, the fund has ensured that the overall risk is kept well within limits, thereby delivering superior risk-adjusted returns for its investors. Though the fund may at times struggle to keep pace with the benchmark, it has the potential to reward investors with superior gains over complete market cycles.

PGIM India Flexi Cap Fund is suitable for investors looking for an actively managed Flexi Cap Fund with an investment horizon of at least 5 years.

 

Warm Regards,
Divya Grover
Research Analyst

 

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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.

 

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About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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