Parag Parikh Flexi Cap Fund: Investing across Geographies to Reduce Risk

Oct 07, 2021

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The Flexi-Cap Funds category has generated stable returns across most time frames. The schemes in this category have the flexibility to dynamically allocate assets across market segments viz. large-caps, mid-caps, and small-caps without any ceiling limit.

The fund managers of Flexi-Cap Funds can invest in whatever segment they spot a growth or value opportunity. Unlike Multi-Cap Funds, Flexi-Cap Funds can reduce allocation to riskier segments such as small-caps and mid-caps to zero if the market conditions are unfavourable. This flexibility gives Flexi-cap funds the advantage of generating better risk-adjusted returns. As a result, Flexi-Cap Funds are a preferred choice for investors who want to invest in a well-diversified portfolio of stocks.

That said, the fund manager's ability to identify opportunities in various market caps/sectors is the key for the growth of Flexi-Cap Funds. This makes it critical to choose Flexi-Cap Funds carefully.

Parag Parikh Flexi Cap Fund is a value-oriented Flexi-Cap Fund that has a track record of standing strong during extreme market conditions and generating superior returns.

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

Launched in May 2013, Parag Parikh Flexi Cap Fund has registered consistency in terms of outperformance across bull and bear market phases. The fund has a mandate to invest dynamically across large-cap, mid-cap, and small-cap stocks. It also invests nearly one-third of its corpus in stocks of offshore companies. However, the fund’s orientation remains more towards value style of investing, whereby it aims to invest in quality stocks available at reasonable or attractive valuations. Following a conservative investment approach, Parag Parikh Flexi Cap Fund has done remarkably well to curb the downside during market corrections, as seen in the 2020 market crash. In the current bull phase, Parag Parikh Flexi Cap Fund has outscored the benchmark and many of its Flexi-cap peers by a significant margin. An investment of Rs 10,000 in Parag Parikh Flexi Cap Fund five years back would have appreciated to Rs 27,299 at a CAGR of 22.2%. A similar investment in the benchmark Nifty 500 – TRI would have grown to Rs 21,276, at a CAGR of about 16.3%.

Graph 1
Data as on October 06, 2021
(Source: ACE MF)
 

Table: Parag Parikh 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
PGIM India Flexi Cap Fund 2,031 74.41 45.98 33.12 21.14 -- 22.89 0.30
Parag Parikh Flexi Cap Fund 16,076 57.01 41.95 28.77 22.23 19.60 19.02 0.33
UTI Flexi Cap Fund 22,592 65.73 38.86 27.87 19.55 16.90 21.45 0.26
DSP Flexi Cap Fund 6,744 64.55 31.26 27.01 17.60 16.25 21.90 0.25
Axis Flexi Cap Fund 9,783 57.35 28.19 26.04 -- -- 18.03 0.28
Canara Rob Flexi Cap Fund 5,730 55.39 33.18 25.82 18.79 15.69 19.71 0.26
Union Flexi Cap Fund 724 60.88 33.73 24.84 16.25 13.37 21.08 0.24
JM Flexicap Fund 187 67.68 26.72 24.52 16.58 16.37 21.45 0.21
IDBI Flexi Cap Fund 366 59.50 29.86 22.94 15.13 14.91 20.07 0.22
Aditya Birla SL Flexi Cap Fund 15,677 61.63 31.26 22.54 15.43 16.67 22.87 0.20
NIFTY 500 - TRI 58.98 30.23 21.90 16.29 14.33 22.59 0.19
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 06, 2021
(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.
 

Parag Parikh Flexi Cap Fund has generated high alpha over the past few years which has been exceedingly rewarding for its long term investors. Over the last 3-year, 5-year, and 7-year periods, the fund has generated substantial alpha over its benchmark Nifty 500 - TRI as well as category peers. Even on the shorter 2-year horizon, Parag Parikh Flexi Cap Fund has outpaced the broader benchmark by around 12 percentage point CAGR.

Parag Parikh Flexi Cap Fund holds an unbeatable track record on the risk-return parameters. With a Standard Deviation of 19.02, the fund's volatility has been the lowest in the category and far below the benchmark (22.59). Moreover, the Sharpe Ratio of the fund at 0.33 is the highest in the category and much ahead of its benchmark. This shows Parag Parikh Flexi Cap Fund's potential to deliver superior risk-adjusted returns for its investors.

Investment strategy of Parag Parikh Flexi Cap Fund

Parag Parikh Flexi Cap Fund seeks to generate long-term capital appreciation from an actively managed portfolio primarily of equity and equity related securities. Its investment universe is not restricted to any specific sector, market capitalisation, or geography. Other than domestic equities, the fund has flexibility to invest up to 35% of its assets in foreign securities.

While picking stocks for the portfolio, the fund managers follow an active investment strategy primarily based on the approach of fundamental research-driven, bottom-up stock selection. They focus on key parameters like growth opportunities, sustainable competitive advantage, industry structure, margins, quality of the management, and protection of minority shareholders.

The fund managers give high importance to intrinsic value of the business and endeavour to purchase stocks that represent a discount to this value in an effort to create value for investors, maintain a margin of safety, preserve capital, and generate superior growth. They have high conviction in their stocks and hold a pure long-term focus on each of their investments. That's the reason why many of its holdings have been in the portfolio for multiple years now.

Graph 2: Top portfolio holdings in Parag Parikh Flexi Cap Fund

Graph 2 Graph 2
Holding in (%) as on September 30, 2021
(Source: ACE MF)
 

As on September 30, 2021 Parag Parikh Flexi Cap Fund held 22 domestic equities in its portfolio. Among these the fund holds top exposure in Bajaj Holdings & Investment (8.7%), ITC (8.4%), Indian Energy Exchange (5.9%), HCL Technologies (5.3%), Hero MotoCorp (4.9%), and Central Depository Services (3.9%). These stocks collectively account for around 37% of its assets.

Alphabet Inc. is the fund's largest foreign exposure (about 8.2% of its corpus), followed by Amazon (6%), Microsoft Corp (6.6%), Facebook (6.1%), and Suzuki Motor Corporation (1.2%).

Among domestic equities, Persistent Systems, Indian Energy Exchange, and Mphasis turned out to be a multi-bagger in the portfolio. Bajaj Holdings & Investment, ICICI Bank, ITC, Balkrishna Industries, Axis Bank, among others also boosted the fund's performance in the last one year.

About 28.9% of Parag Parikh Flexi Cap Fund's portfolio is exposed to offshore equities. Banking and Finance form another 24.6% of its assets, followed by Infotech, Power, Consumption, Auto, Pharma, and Auto Ancillaries.

Suitability

Parag Parikh Flexi Cap Fund's ability to stand strong even during depressed market conditions has enabled it to generate meaningful alpha over its benchmark and thereby has exuded confidence among its investors. The high alpha that this fund has generated over the past few years has proved to be exceedingly rewarding for long term investors.

Its bet on fundamentally sound undervalued stocks has benefited the fund so far. Moreover, its focus across market caps and geographies enables it to remain flexible enough to deal with the changing market sentiments. The fund managers do not compromise on risk management aspects to generate higher returns. The fund is well equipped to manage market volatility and reward investors over complete market cycles.

Parag Parikh Flexi Cap Fund is suitable for pure long term investors looking for a value-oriented Flexi-cap fund that can offer diversification along with decent margin of safety and stability.

 

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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  1. Money Simplified Services Private Limited;

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  3. Equitymaster Agora Research Private Limited;

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