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We stay away from companies with questionable management: Rajeev Thakkar of PPFAS Mutual Fund

'We have stayed away from frothy valuations. This has helped in withstanding the severe selloff seen in 2018 in the broader markets.'

, ET Online|
Updated: Nov 28, 2019, 10.17 AM IST
ET Online
rajeev thakkar
ETMutualFunds.com recently came out with a list of fund managers who have created the maximum wealth for investors in the last five years. Read the story here: These mutual fund managers made the maximum money for investors in last 5 years.

Parag Parikh Long Term Equity Fund, relatively a new comer in the mutli cap category, has put out an impressive performance in the last five years. It has outshined its peers to be positioned in the top quartile in 2018 and year-to-date. Rajeev Thakkar, CIO & Equity Fund Manager, PPFAS Mutual Fund, spoke to Avneet Kaur of ETMutualFunds.com to share his strategy.

Parag Parikh Long Term Equity Fund has outshined its benchmark and category consistently in the last five years. The scheme has been a top quartile performer in 2018 and in this year till today. How did you achieve this performance?
We have been cautious in terms of staying away from companies with questionable governance. At the same time, we have stayed away from frothy valuations. This has helped in withstanding the severe selloff seen in 2018 in the broader markets. While in a runaway bull market like that seen in 2017, such an approach seems conservative, it helps in later periods of selloffs.

Given that we can invest in India as well as in overseas stocks, it has also enabled us to widen out opportunity set and to seek out the most promising businesses at attractive valuations. Investing in some of the newer businesses like Alphabet (Google) has also helped us.

Parag Parikh Long Term Equity Fund’s 10% portfolio is in shares of Google is a unique feature. The biggest benefit of this investment, as we all know, is diversification. But isn't investing 10% of the portfolio in one international stock a big risk? Is this risk measured?
The 10% is the upper end of the weightage in one stock. Our typical weightage is more like 4% to 5% in one stock and that is the median weightage in a portfolio of about 25 stocks. In some cases like Google, where there is a combination of high business quality plus attractive valuation, we tend to have a higher weightage in the portfolio. Sometimes the higher weightage also comes because of price appreciation of the stock relative to other investments in the portfolio. We are mindful of the concentration risks and we would not want to take undue risks.

At a portfolio level, one can clearly see that for Parag Parikh Long Term Equity Fund, all the measurable risk parameters like standard deviation of the portfolio returns, portfolio beta and so on are far lower than those seen for the benchmark (Nifty 500) and for the category (multi cap equity schemes). On a risk-adjusted basis as well we believe the approach delivers.

What is one thing in your ‘not-to-do’ list while managing the scheme?
We stay away from investing in companies with questionable promoters/management.

The scheme manages assets worth Rs 2,359 crore. Given the scheme’s outperformance and the fact that it has completed five years now and it has been rated on all platforms, it will further attract new investors. Some of them will enter only on the basis of performance. We have often heard from PPFAS management that they want long term investors who understand value investing. How do you plan to communicate this concept new investors?
To start with, we communicate suitability by including "Long Term" in the scheme name. We have exit loads in place for redemption in the first two years. This exit load is ploughed back into the scheme and the AMC does not benefit from it but it helps keep out short term investors. Our fact sheet mentions the fact that the scheme is suitable only for investors with a five-year plus investment horizon. We also try to communicate the same through our annual unit holders meetings.

Currently, the scheme has around 73% of its portfolio in large caps. Given the fact that the mid and small caps have started to catch up now, are you planning to increase mid and small-cap holdings in the scheme?
Our approach relies on buying companies which are attractive, irrespective of the market capitalisation. It so happens, however, that the last stock to be added to our scheme was indeed a small cap.

Value-oriented schemes are going through tough times. Since your fund house swears by value investing, what is your take on this?
Different people mean different things when they talk about value investing. To give an analogy, for some it may mean consuming street food while others may want a gourmet restaurant meal at discounted prices. Our approach is the latter one. Some people refer to it as Growth / Quality at reasonable prices.

This approach of keeping in mind the quality of a business and the future growth prospects and at the same time not overpaying in terms of valuation helps in investing across market cycles.

What would you tell investors who are worried about the current economic scenario and the market?
Positive headlines and attractive investment opportunities seldom go hand in hand. The economic headlines in 2008 and 2009 were quite bad and opportunities were great. Auto stocks were a bad investment when there was a waiting period for cars and bikes and today when auto sales are down, stock prices in many cases are down between 30% to 50%. In equity investing, one has to look at it as buying a business and one has to be prepared to go through good times and bad. For people looking to invest regularly over a long period of time, in any case, it does not matter.

Also Read

We stay away from companies with questionable management: Rajeev Thakkar of PPFAS Mutual Fund

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A horizon of 5 years reduces chances of negative returns: Rajeev Thakkar, CIO, PPFAS MF

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