Fund Call . Parag Parikh Long Term Value: A value-investing approach

Amidst the ongoing market volatility, several marquee funds are struggling. But a few such as Parag Parikh Long Term Value Fund have beaten the odds convincingly.

The fund’s one-year return of 16.5 per cent is far ahead of the 8 per cent return of its benchmark Nifty 500 TRI (Total Return Index) and the 5 per average return of the multi-cap category.

Parag Parikh Long Term Value Fund recently completed five years, and sports an annualised return of 19.5 per cent over this period, placing it in the top quartiles among peers. Investors can buy the fund as part of their core portfolio.

Long game

Parag Parikh Long Term Value Fund follows a value-investing approach. This could mean short-term underperformance in raging bull markets. But when the tide turns, the fund weathers downsides better than peers. Quality stocks picked at reasonable valuations also tend to deliver well in the long run.

The fund follows a bottom-up, buy-and-hold strategy in a compact portfolio of about 30 stocks. Over the past year and a half, it has increased its cash holdings and arbitrage positions from about 9 per cent of the corpus as of December 2016 to about 24 per cent as of June 2018.

The fund also reduced its exposure to smaller Indian stocks to less than 20 per cent of the corpus from nearly 30 per cent about a year and a half back.

This has helped the fund during the ongoing market volatility that has seen small- and mid-caps take a hard knock.

Along with this, several stocks in the portfolio, such as Mphasis and Maharashtra Scooters, have rallied smartly.

Besides, the fund invests about a third (currently 28 per cent) of its corpus in blue-chip international equities.

Global bets

This can give diversification benefits and aid portfolio returns over the long run. Alphabet (Google’s parent company) is the fund’s largest foreign exposure (about 10 per cent of corpus), followed by Facebook (about 5 per cent). Nearly 85 per cent of currency exposure from its foreign stocks is hedged.

Despite its overseas exposure, the fund qualifies as an equity fund, eligible for favourable tax treatment, as at least 65 per cent of its corpus is in Indian equities. With its corpus going beyond ₹1,000 crore earlier this year, the fund has further reduced the expense ratio to 2 per cent (excluding GST) for regular plans. Technology and software stocks continue to have the largest share in the portfolio (about a quarter of the corpus).The top Indian stock holdings are HDFC Bank and Bajaj Holdings and Investment (6-7 per cent).

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