Fund analysis: Parag Parikh Flexi Cap Fund
As we all know, diversification is a tool that helps in reducing investment risk by allocating assets to various financial instruments, sectors, and businesses. Hence, having a diversified portfolio is always advisable. Parag Parikh Flexi Cap Fund (erstwhile-Parag Parikh Long-Term Equity Fund) is one of the most diversified funds in the category.
Asset allocation
|
Asset allocation (per cent)
|
|
Asset Class
|
Fund
|
Category
|
Index
|
|
US Equity
|
28.17
|
0.90
|
0.00
|
|
Non-US Equity
|
68.24
|
96.16
|
100.00
|
|
Fixed income
|
0.00
|
0.21
|
0.00
|
|
Other
|
0.00
|
0.07
|
0.00
|
|
Cash
|
3.59
|
2.96
|
0.00
|
|
Source: Morningstar
|
The asset allocation of the fund is such that, it has dedicated 28 per cent of its assets to overseas investments, 68 per cent towards domestic investments and the remaining to cash. And, if we compare the same with that of category and index (Nifty 500 TRI), then this fund certainly seems to be quite diversified.
Sector allocation
|
Sector allocation
|
|
Asset class
|
Fund (per cent)
|
Category (per cent)
|
|
Cyclical
|
|
Basic materials
|
0.0
|
8.8
|
|
Consumer cyclical
|
16.8
|
10.8
|
|
Financial services
|
30.0
|
30.7
|
|
Real estate
|
0.0
|
0.3
|
|
Sensitive
|
|
Communication services
|
14.9
|
4.2
|
|
Energy
|
0.0
|
5.6
|
|
Industrials
|
0.0
|
8.4
|
|
Technology
|
22.7
|
13.4
|
|
Defensive
|
|
Consumer defensive
|
10.2
|
7.7
|
|
Healthcare
|
5.4
|
7.5
|
|
Utilities
|
0.0
|
2.6
|
|
Source: Morningstar
|
The above table shows that the fund’s sector allocation is highly skewed towards financial services, followed by technology and consumer cyclical with the lowest allocation to defensive sectors. According to the Scheme Information Document (SID) of the fund, the fund manager(s) follow an active investment strategy, primarily based on fundamental research, which is driven by a bottom-up stock selection approach.
Alpha drivers
If we further dive deeper, then we would find that the alpha created by the fund was primarily due to stock selection, where 60 per cent of the stock picks went right. On the other hand, 77 per cent of the positions were different from that of the benchmark. Here, the benchmark assumed is the synthetic category average. Moreover, the sector allocation has created a negative alpha of 4 per cent, while the stock selection created a positive alpha of 12 per cent. Therefore, we can say that it is stock picking that has done well for this scheme.
Performance
As we can see from the above graph, the scheme in all three rolling returns period stretched from May 2013 to February 2021 thereby, outperforming its benchmark index, Nifty 500 Total Returns Index (TRI).
Even in terms of trailing returns, this scheme outperformed its benchmark i.e. Nifty 500 TRI as well as its category. This shows that in terms of performance, this fund indeed performs well.
Note: Past performance is not a guarantee of future performance.
Risk measures
|
Risk and volatility measures
|
|
Particulars
|
Fund
|
Category
|
Index
|
|
Alpha
|
7.49
|
-0.88
|
0.88
|
|
Beta
|
0.77
|
0.95
|
0.85
|
|
Sharpe ratio
|
0.55
|
0.13
|
0.17
|
|
Standard deviation
|
19.00
|
22.31
|
22.86
|
|
Up capture
|
77
|
92
|
100
|
|
Down capture
|
42
|
94
|
100
|
|
Maximum drawdown
|
-23.13%
|
-27.25%
|
-28.81%
|
|
Source: Morningstar
|
If we look at the risk and volatility measures, then this scheme scores over all other except the up-capture ratio. However, in terms of risk-adjusted returns, it performed better than category and benchmark.