Parag Parikh Long Term Equity Fund: Offering Dual Benefit
Oct 24, 2019

Author: Divya Grover

(Image source: photo created by freepik freepik.com)

A dual investment approach can work wonders for one's portfolio returns in any market condition. It can reward investors seeking long term capital appreciation from a cautiously managed portfolio offering exposure across asset classes, market caps or geographies.

Parag Parikh Long term Equity Fund (PPLTEF) is one such unique multi cap fund that seeks to offer smart growth potential with value investing approach, diversification across market caps and at the same time offer exposure to global giants like Alphabet, Facebook and Amazon. Its diversified approach has helped it mitigate volatility across market phases.

The fund was earlier known as Parag Parikh Long Term Value Fund and was categorised as value fund. Although the fund was categorised as a multi cap fund last year, it continues to follow value based approach while creating a diversified equity portfolio. The fund has a corpus of around Rs 2,205 crore.

Mr Rajeev Thakkar is the equity fund manager while Mr Raunak Onkar is the dedicated fund manager for overseas investment. Mr Raj Mehta is responsible for the fixed income investment component of the portfolio.

Graph 1: Growth of Rs 10,000 if invested in PPLTEF 5 years ago

Had you invested Rs 10,000 in PPLTEF five years back on October 22, 2014, it would now be worth Rs 18,413 (as calculated on October 22, 2019). This translates into compounded annualised growth rate of 12.99%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark Nifty 500 - TRI would have grown to Rs 15,569 (a CAGR of 9.26%). As we can see in the chart alongside, the fund has maintained significant lead over the benchmark in the last five years.

Graph 1: Growth of Rs 10,000 if invested in PPLTEF 5 years ago
 
Data as on October 22, 2019
(Source: ACE MF)

Graph 2: PPLTEF year-on-year performance

Graph 2: PPLTEF year-on-year performance
 
*YTD as on October 22, 2019
(Source: ACE MF)

Launched in May 2013, PPLTEF has a track record of over six years. The year-on-year performance comparison of PPLTEF vis-à-vis its benchmark Nifty 500 - TRI shows that the fund outperformed the index in 4 out of last 6 calendar years. The fund trailed the index in CY 2017, whereas in CY 2016 its performance was nearly in line with the benchmark. Even in CY 2018 when the benchmark registered negative returns PPLTEF managed to generate positive returns for its investors. In the current year as well the fund has continued with enhanced returns over the benchmark.

Table 1 :PPLTEF performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1-year (%) 2-year (%) 3-year (%) 5-year (%) Std Dev Sharpe
Kotak Standard Multicap Fund 26,991 4.15 10.03 14.70 17.66 13.12 0.08
JM Multicap Fund 139 0.58 7.45 14.63 15.93 14.21 0.09
Edelweiss Multi-Cap Fund 456 0.58 11.42 14.15 NA 14.27 0.08
HDFC Equity Fund 22,491 3.91 9.64 14.12 13.64 15.54 0.05
Principal Multi Cap Growth Fund 847 -4.22 7.98 13.80 14.96 15.37 0.02
Aditya Birla SL Equity Fund 11,247 -0.38 6.95 13.63 16.52 13.61 0.00
Canara Rob Equity Diver Fund 1,438 4.70 11.60 13.44 12.68 13.18 0.08
Motilal Oswal Multicap 35 Fund 13,235 -3.44 6.51 13.40 17.66 15.06 0.04
Parag Parikh Long Term Equity Fund 2,205 3.52 11.60 13.00 15.03 8.99 0.13
SBI Magnum Multicap Fund 8,073 1.19 8.99 12.87 17.43 13.25 0.06
DSP Equity Fund 2,786 0.79 8.23 12.46 14.17 15.39 0.06
ICICI Pru Multicap Fund 4,253 2.81 8.65 12.46 15.20 13.06 0.00
Quant Active Fund 8 0.05 9.99 11.35 16.29 13.70 0.03
UTI Equity Fund 9,536 2.50 10.47 11.25 13.20 13.42 0.04
BNP Paribas Multi Cap Fund 706 -2.44 6.43 11.23 14.81 14.12 0.05
Nippon India Multi Cap Fund 10,021 2.40 9.81 10.98 13.40 16.36 0.02
Invesco India Multicap Fund 905 -7.07 5.67 10.58 16.81 15.97 0.00
PGIM India Diversified Equity Fund 118 -0.82 6.83 10.50 NA 14.22 0.02
L&T Equity Fund 2,643 -2.62 6.55 10.37 12.85 13.01 -0.01
HSBC Multi Cap Equity Fund 441 -5.46 4.67 9.65 12.68 16.30 -0.03
NIFTY 500 - TRI 0.42 8.96 12.35 12.33 13.50 0.04
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on October 22, 2019
(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.

PPLTEF has outpaced the benchmark and average category peers across rolling periods, the exception being 5-year rolling period where its performance was nearly in line with the category average.

The fund stands among the top performers on a 1-year and 2-year rolling period basis, while on 3-year and 5-year rolling return basis it stands ahead of many other funds in the multi cap category. Kotak Standard Multicap Fund, JM Multicap Fund and Edelweiss Multi-Cap Fund were the top performers in the category.

In terms of risk-return parameters, the fund registered low volatility as compared to benchmark and peers. Regardless, it managed to reward investors with superior risk-adjusted returns.

Investment strategy of PPLTEF

PPLTEF is a diversified equity scheme which aims to invest across sector, market capitalisation and geography. While it enjoys flexibility to invest in overseas equities not exceeding 35% of its assets, it needs to invest an average of 65% of its corpus in listed Indian equities in order to benefit from the favourable capital gains tax treatment accorded to equity schemes.

The fund manager follows an active investment strategy primarily based on fundamental research driven bottom-up stock selection approach. To select stocks for the portfolio it focuses on areas such as growth opportunities, sustainable competitive advantage, industry structure, margins, quality of the management and protection of minority shareholders.

Parag Parikh mutual fund is known for its value investment style. Accordingly the fund managers endeavour to purchase stocks that represent a discount to their fair intrinsic value in an effort to preserve capital and generate superior growth in the long run.

Graph 3: PPLTEF portfolio allocation and market capitalisation trend

Graph 3: PPLTEF portfolio allocation and market capitalisation trend
 
Holding (in %) as on September 30, 2019
(Source: ACE MF)

PPLTEF not only offers diversification in stocks across market cap segment, but also invests nearly a third of its corpus in foreign securities, which is rare among Indian equity funds. Its portfolio allocation to large caps has hovered in the range of 35% to 45%, while the mid-cap exposure in the portfolio has been at around 10% to 15%. Remarkably the allocation to small caps has been in the range of 10% to 20%. Its exposure to offshore securities has ranged 25% to 30% over the last one year, while the allocation to cash and equivalents has been well within the 10% mark.

Graph 4: PPLTEF top portfolio holdings

Graph 4: PPLTEF top portfolio holdings Graph 4: PPLTEF top portfolio holdings
Holding (in %) as on September 30, 2019
(Source: ACE MF)

As on September 30, 2019, PPLTEF held a compact portfolio of 27 stocks of which 23 are domestic equities. The top 10 stocks amount to 60.9% of the portfolio which includes three overseas equities. Alphabet Inc. has been the top holding in the portfolio with an allocation of 10.1%, followed by HDFC Bank at 9.6% and Bajaj Holdings & Investment at 7.8%. Rest of the stocks in the top 10 holdings have allocation in the range of 4-6% each.

While the fund's portfolio is spread across few selected sectors, it takes concentrated bets on attractive looking sectors offering value advantage. Currently the fund holds major exposure to Infotech (23%), Banks (20.5%) and Finance (13.6%). Pharmaceuticals, Auto & ancillaries, Retail and Consumption are the other prominent sectors in the portfolio.

Top contributors

Among the domestic equities in the portfolio, Maharashtra Scooters contributed the most to the fund's return in the last one year with a weighted return of 1.6%. ICICI Bank, Zydus Wellness, Bajaj Holdings & Investment were the other top contributors to the portfolio gains.

On the other hand stocks like Tata Steel, Persistent Systems, and Balkrishna Industries eroded some of its gains in the last one year.

Suitability of PPLTEF

PPLTEF's focus across market caps and geographies enables it to remain flexible enough to deal with the changing market sentiments. Its bet on fundamentally sound undervalued stocks has benefited the fund so far. As the fund largely follows value investment approach there may be an extended phases of underperformance before the true potential of the stock blossoms. Further, the compact portfolio size and exposure to global equities means that some of its prominent holdings may come under pressure during uncertainties in domestic or global markets and have an impact on its performance. However its cautious investment approach with long term view makes it suitable for investors having moderately high risk appetite and longer investment horizon of at least five years.

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.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have recently identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2019'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

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.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the associates holding units of Parag Parikh Long Term Equity Fund.

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021.

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



Add Comments