First, the good news. PPFAS Mutual Fund’s AUM as of May 2014 has surged to Rs. 426 crore. This is not surprising given that the retail investors are now making a bee-line for equities.
The performance of the PPFAS Mutual Fund has been average. On a YOY basis, the fund has given a return of 39%. This compares favourably with the Nifty’s YOY return of 28%. However, some of its peers are way ahead. Reliance Small Cap Fund & HDFC Mid-Cap Opportunities, run by whiz-kids Sunil Singhania & Prashant Jain respectively, have surged ahead and given returns of 87% & 57% YOY return respectively. Some other diversified funds like Birla Opportunities Fund, L&T India Value Fund, Tata Equity Fund etc, etc, have also given handsome YOY returns ranging from 50% to 60%.
However, SBI Emerging Markets Fund, run by R. Srinivasan, continues to languish in the dog-house with a YOY return of only 23.3%, underperforming even the Nifty. It is unfortunate that an erstwhile stellar performer has fallen on such hard times. We will have to explore the reasons for this.
Anyway, getting back to PPFAS, in my piece of February 2014, I had raised the pertinent question “Why Does Parag Parikh’s PPFAS Mutual Fund Have So Much Money In Foreign Stocks?” I made three salient points: (i) when the whole World is pumping in billions of dollars into India, why is PPFAS doing the reverse? & (ii) the foreign stocks chosen are of blue-chip behemoths like Nestle, IBM, 3M etc which are operating in mature and saturated markets without as much scope for growth as their Indian counterparts. I pointed out from the share price data that in the past 5 and 10 years, the Indian counterparts of Nestle, 3M etc have given more bang for the buck than their foreign parents because the scope for growth in India is much higher. (iii) I also made a reference to the fact that the strong rupee means that whatever little you eke out of the foreign stocks gets wiped out in the currency conversion.
Since then, NAMOmania has gripped the nation. I don’t have to tell you how Indian stocks are surging. Astute & experienced market watchers like Rakesh Jhunjhunwala & Raamdeo Agarwal are confidently predicting a multi-year bull run for Indian equities.
So, my point about investing in foreign stocks becomes more relevant now.
Parag Parikh, to his credit, does not shy away from these questions. Instead, he tackles them head on in the latest fact sheet (pdf). He answers the questions as follows:
“Given this backdrop, there are obvious questions
a) Is it time for a 100% India allocation?
b) Will not the appreciation of the Rupee work against an internationally diversified portfolio?
PLTVF has the flexibility to be 100% in Indian equities. However we are choosing not to do that at this time. The reasoning is simple. We are not there to time markets or to “maximise” returns. We aim to select high quality businesses available at attractive valuations. An International diversification gives us more choice and at the same time reduces portfolio volatility.
It is true that in any period which is marked by a very strong run in the Indian markets, the PLTVF would lag in performance but this is a choice we have made. We believe that over a cycle or an approximate investment horizon of more than 5 years, the benefit of having invested in international stocks would outweigh the short term under-performance.”
So, there you have it. Parag Parikh has made it clear that he is not going to dance to NAMO’s tune but will stick to his original game plan of investing in foreign stocks, even if there is under-performance in the meanwhile.
The intriguing aspect, however, is that even while Parag Parikh acknowledges that the foreign stocks may cause underperformance, he has gone ahead and increased the allocation to foreign stocks by investing Rs. 12.47 crore in buying Google C Class shares (Google C Class shares are like DVRs – without voting rights. You can read about them here). Maybe, he should have waited for NAMOmania to subside before doing that.