PPFAS Long Term Value Fund

A diversified equity oriented fund seeking to invest only in undervalued companies

Summary

Type	An Open–ended diversified equity Fund	Benchmark Index	CNX 500 Index
Min. Investment: Additional purchase:	For lump sum -> Rs 1,000 and in multiples of Re 1 thereafter For Systematic Investment Plan (SIP) -> Rs 1,000 for monthly SIP Option and RS 5,000 for quarterly SIP Option and in multiples of Re 1 thereafter under both the options Rs 1,000 and in multiples of Re 1 thereafter	Exit Load:	Nil
Entry Load	Nil	Face Value	Rs 10 per unit
Issue Opens	May 13, 2013	Issue Closes:	May 21, 2013

 

Investment Objective*

The investment objective of the scheme is “to seek to generate long-term capital growth from an actively managed portfolio primarily of equity and Equity Related Securities.”

 

(Source: Scheme Information Document)

 

Is this fund for you?

PPFAS Long Term Value Fund (PLTVF) is being positioned as a value oriented fund investing in stocks which are available at a discount to their intrinsic value. The philosophy of the fund house (so as that of the fund) has been to invest in mispriced companies with intent of buying a part of the business. The fund will focus only on long term opportunities. The fund has explicitly mentioned in its Scheme Information Document (SID) that it is suitable only for those who have an investment horizon of at least 5 years.

Portfolio Strategy

PLTVF would follow the bottom up approach of stocks picking wherein investment in companies is done only for their fundamental merits ignoring the broader macro-economic trends. The companies would be assessed on several parameters that include

 

• Growth opportunities
• Sustainable competitive advantage
• Industry structure
• Profit margins
• Quality of the management and protection of minority shareholders
   

PLTVF will have no bias towards a particular market capitalisation or a sector. PPFAS Mutual Fund endeavours to buy stocks when they are down. PLTVF will apply behavioral finance strategy in managing the fund. Behavioral finance studies effects of factors pertaining to human psychology on assets prices and resource allocation.

The asset allocation which will be followed by the fund will be as under:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity and equity related instruments	65	100	High
Debt Securities, Money Market Securities	0	35	Low to Medium
Foreign Equity and equity related instruments	0	35	High

(Source: Scheme Information Document)

 

The fund is mandated to invest minimum 65% of its assets in equity and equity related securities of Indian companies. It also has a flexibility to invest upto 35% of its assets in foreign equity and equity related instruments. The investment in securitised debt should be capped at 25% and exposure to debt, cash and money market instruments may go upto 35% at maximum. Furthermore, PLTVF may also invest 50% of its net assets in derivative contracts for trading, hedging and portfolio rebalancing.

 

Fund Manager Profile

PLTVF will be managed by Mr. Rajeev Thakkar who is the CIO and equity fund manager at PPFAS Mutual Fund. Mr. Thakkar, a commerce graduate who is also a CA, CFA Charter Holder and a Grad ICWA; has about 20 years of experience. Mr thakkar has been associated with PPFAS from 2001 and has experience in managing assets worth close to Rs 300 crore for the PMS division of PPFAS.

Mr Rounak Onkar, Associate fund manager at PPFAS Mutual Fund, is the investment manager dedicated for overseas investments. Mr Onkar is a commerce graduate and has completed Master’s program in Management Studies. He has 3 years of experience in research with no experience in fund management.

 

Fund Outlook

The launch of PLTVF has come at a time when Indian equity markets are no longer cheap given that markets have rallied over past 8 months and corporate earnings still fail to post any substantial rise. Other macro-economic growth indicators still look sluggish. Under circumstances such as these, the fund may find it difficult to spot opportunities which would fit into its criteria.

However, if markets become cheaper and stock prices fall; PLTVF may get ample of opportunities to cherry-pick mispriced companies. Since it endeavours to invest only in companies that are available at discount to their intrinsic value; the investment strategy may often involve taking contra bets on sectors and stocks. This may give rise to volatility in returns. Moreover, PLTVF has also shown interest in investing overseas. This may expose the fund to currency risks besides the risks associated with the markets where it intends to invest its monies.

Founders and the portfolio managers are said to be committed to investing their own funds and have also encouraged their employees to invest. Although the association of some veteran investors such as the founder of PPFAS may raise the expectations of investors; it still remains to be seen as to how the processes and systems are being laid. A mutual fund, unlike PMS, has to rely on processes and systems rather than conviction of individuals to be successful in the long run. PLTVF may prove to be a unique proposition if it sticks to its investment philosophy and generates superlative returns over the long term.

 

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