Any Takers For Parag Parikh (PPFAS) Mutual Fund?

Parag Parikh is a certified value investor which means that he is always looking for stocks which are supposedly not popular or discovered by the hoi polloi. So, you will always find him turning stones over and looking in nooks and crannies, hoping to find that elusive multibagger stock that no one has spotted yet.

While the idea of finding stocks that are quoting at a value much lower than their present intrinsic value is fine in theory, it often does not work very well in practice. After you have bought the stock and held on for several years, you suddenly realize that there was good reason for the stock to have been quoting at the low valuation. And by the time realization dawns, you would have lost a good chunk of your money.

Parag Parikh has also not had much luck with this value investing business.

One of his all-time favourite stocks is Noida Toll Bridge. What Parag Parikh finds appealing about this stock is that it has a fixed source of income that relies on vehicular traffic. The increasing traffic means increasing revenues. And as the costs remain more or less steady, the profits will increase year after year, giving huge profits to its shareholders. However, the real life scenario hasn’t quite panned out that way and since August 2010, when Parag Parikh recommended the stock, Noida Toll Bridge has lost 31%.

Another of Parag Parikh’s favourite stocks is Mphasis. The logic is simple that as Mphasis is a subsidiary of the billion dollar Hewlett Packard, it will bask in the riches that HP will throw at it. However, ironically, being a subsidiary of HP proved to a curse for Mphasis because the former used its influence to squeeze Mphasis’ margins. The poor stock has lost 20% over 2 years.

Yet another of Parag Parikh’s favourite stocks is ABC Bearing which was recommended in November 2010. That worthless stock has lost 37% in the last one year. If you look at the time since Parag Parikh recommended it, the stock has lost a whopping 54%.

A few stocks have spared Parag Parikh the blushes but if you look at the overall impact, it is not very inspiring. If you look at the March 2013 Fact Sheet of the Cognito PMS, you will find that the performance is as follows:

The performance in the last one year segment is striking and shows gross under-performance compared to the Index.

Now, lets compare it with the market favourite mutual funds IDFC Sterling Equity Fund (G) and HDFC Mid-Cap Opportunities Fund (G):

@ since 19.03.2008
(All Returns Are Annualized)

If you increase the sample size to include another favourite SBI Emerging Businesses Fund (G), you will find that this fund gave a magnificent return of 27.6% in the period from 1st March 2012 to 1st March 2013. If you go back to March 2010 (3 years), then the SBI Emerging Businesses Fund (G) has given annualized returns of 23.2%.

If you add a large cap mutual fund such as BNP Paribas Equity Fund (G) to the sample, you will find that in the period from 1st March 2012 to 1st March 2013 it has given 13% return and in the period from 1st March 2010 to 1st March 2013, it has given an annualized return of 9.4%.

So, the point is that all the four popular mutual funds in our sample (IDFC Sterling Equity Fund (G), HDFC Mid-Cap Opportunities Fund (G), SBI Emerging Businesses Fund (G) & BNP Paribas Equity Fund (G)) have heavily outperformed the PPFAS Cognito PMS over the one year and three year period.

So, the bottom line of my thesis is that there is no unique value proposition that the PPFAS Mutual Fund offers over the existing mutual funds. If at all, it proves that you are better off with the tried and tested rather than experimenting with a new fund.

Of course, this does not mean that you shouldn’t keep a hawk eye on the stock picks of Parag Parikh and his PPFAS Mutual Fund. You never know when he might discover that one elusive super-duper multibagger stock that you have been chasing all your life and which can make up for all the underperformance!