Well-managed funds with a value-investing focus are a good choice for long-term wealth creation. Especially so in raging bull market conditions such as now, which have seen valuations of several stocks shoot up. Parag Parikh Long Term Value Fund fits the bill well. In line with its value investing approach, the fund has over the past few months cut exposure to equities, and upped its cash holdings and arbitrage positions to about 20 per cent of the corpus as on December 2017 from about 9 per cent as on December 2016. This has contributed to the fund’s one-year return (about 30 per cent) lagging the nearly 32 per cent gain of its benchmark Nifty 500.

The short-term under-performance though should make way for out-performance in the long run. Market corrections, when they happen, will see the fund well-positioned to deploy money in equities. This approach along with a bottom-up, buy-and-hold strategy in a compact portfolio of about 30 stocks, has worked well for the fund in the past since inception in May 2013. Over a three-year period, the fund’s annualised return of about 14 per cent has been better than the benchmark’s 11 per cent and is also higher than the multi-cap fund category average. The fund will complete five years in May this year.

Foreign exposure

A key differentiator in Parag Parikh Long Term Value is its exposure to foreign stocks. The fund invests about a third of its corpus in blue-chip international equities; current exposure is about 28 per cent of the corpus.

An element of global exposure can provide good diversification benefits to an investor’s overall portfolio. Alphabet (Google) is the fund’s largest foreign exposure (about 10 per cent of corpus), followed by Facebook (about 5 per cent).

The fund’s value focus extends to its foreign portfolio too, reflected in its exit in recent months from Apple Inc that had run up sharply. The fund has recently added to its portfolio Suzuki Motor Corp, the parent company of Maruti Suzuki India.

Suzuki Motor Corp trades at much cheaper valuations that Maruti Suzuki India. Nearly 80 per cent of currency exposure from its foreign stocks is hedged.

Despite its significant 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. The fund has been reducing its exposure to smaller Indian stocks — these now account for about 20 per cent of the corpus, down from nearly 30 per cent almost a year back. Exits include MT Educare and Gujarat Gas. The fund’s expense ratio, that was reduced thrice last year (currently 2.15 per cent (excluding GST) for regular plans), could moderate further with increase in the corpus beyond ₹1,000 crore (currently ₹987 crore). This will improve returns.

In the overall portfolio, technology and software stocks have the largest share (about a quarter of the corpus). Private sector banks and finance companies are the top sectors in the fund’s Indian portfolio. The top Indian stock holdings are HDFC Bank and Bajaj Holdings and Investment (about 7 per cent each).

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