This mutual fund gave 17% returns in last one year vs average category return of 0.56%. What was the secret strategy?

Equity mutual funds had a bad show in the last one year. But there were a few equity schemes which outshined to beat all the odds. Parag Parikh Long Term Equity Fund, a multi cap equity scheme generated 17.50% returns in the last one year. Multi cap funds category on an average gave only 0.56%. The worst performer in the category, Nippon India Multi Cap Fund was down by 18.98% in the same period.

While the returns generated by most mutual funds remained gloomy, PPFAS Long Term Equity topped all equity schemes as well, except sectoral funds. The scheme gave returns of 11.75% in the last three years and 11.64% in the last five years. It was a topper across categories in the three year period. In five year period, the scheme took the second place.

What was the secret strategy?

Neil Parikh, Chairman and CEO, PPFAS MF believes that the main reason for the performance so far has been investment discipline. “We are extremely conscious of the price we pay for our investments. If we do not find opportunities or if valuations are high, then we do not force ourselves to invest and prefer to remain in cash. When markets crash, we are aggressive to put our cash to good use,” said Neil Parikh, Chairman and CEO, PPFAS MF.

Parikh went to to explain how the team managed the crisis caused by Covid19.

“When markets crashed due to COVID , we were able to deploy the cash at some good valuations. Along with this, stock selection is also an important criteria. We are happy with our stock selection and confident the companies we have chosen will be able to thrive in the coming years,” said Parikh.

Where does the scheme invest?

As of June 30, the scheme had invested 65.42% of its portfolio in domestic equities, 28.91 in foreign securities and remaining in cash for liquidity. Neil Parikh believes the overseas investments in the portfolio have helped PPFAS Long Term Equity Fund to deliver a great performance.

“Our scheme structure allows us to invest a maximum of 35% of the portfolio in global companies. This overseas allocation has helped our performance as US markets have outperformed Indian markets in the recent past and most of our foreign investments have done well, says Parikh.

The scheme’s top holdings include- Amazon (8.83%), Alphabet (7.91%) and HDFC Bank (6.93%). The top 10 equity holdings amount to 64.89% of the portfolio. These include four overseas listings.

'Internet & Technology', 'Banks' and 'Software' make up the top three sectors, comprising 43.63% of the portfolio.

Going forward, Neil Parikh says, if the valuations become expensive and there is lack of opportunities, the scheme will not mind sitting in cash.

“If markets keep rising and valuations start becoming expensive, we will not hesitate to build up cash positions, if opportunities are hard to come by. The fund will see some underperformance during this period,” says Parikh.

PPFAS Long Term Equity Fund is managed by Rajeev Thakkar (equities), Raunak Onkar (overseas investments) and Raj Mehta (debt).