Rajeev Thakkar on his go-anywhere fund

Jul 20, 2016

PPFAS Long Term Value Fund now boasts of a track record of three years. The fund stands out in the sense of not having constraints by way of market cap, sector or geography.

Rajeev Thakkar, the chief investment officer and director at PPFAS Mutual Fund, speaks about the fund.

The fund’s 3-year return is below the flexi-cap category average, its 1-year return is above, but its YTD is way below. What is the reason for such wavering returns?

At the onset I would like to point out that the communication to investors is to invest in the fund only with an investment horizon of at least five years.

Since the fund does not mimic the index, there can be variation in the fund returns as compared to the benchmark. And with a mandate to invest across sectors, market capitalisation and, to an extent, across geographies, the returns will differ as compared to other funds in the category. More than a quarter of the funds are invested in overseas stocks, hence the fund returns in the short run depend on the relative performance of the Indian market vis-à-vis the overseas markets.

So basically this fund is difficult to benchmark since it has stocks listed abroad. How do you position it to investors?

Almost 100% of the investment assets of Indian investors are in Indian stocks, bonds and real estate. Given that India's share of global GDP is around 7% even on a PPP basis, there is 93% of economic activity outside India where Indian investors are not participating. Investing some portion abroad gives additional diversification thereby lowering risk as well as provides opportunities not available in the Indian markets.

Our positioning to investors is that the scheme reduces the portfolio risk and gives diversification benefits and at the same time it allows participation in unique opportunities unavailable in India.

How do you select the universe of global stocks to invest in? Do you only look at large caps?

We look at three criteria:

  1. Companies with English language reporting.
  2. Companies from countries with a good legal system, good accounting norms and a history of protecting minority shareholders.
  3. Companies which are global multinationals and companies with which we are familiar in India.

Typically these would be large-cap names. We do not look at niche overseas companies.

Walk us through your portfolio construction – do you start top down? Where do you begin? Would you include small and micro caps in your portfolio?

We are bottom-up stock pickers.

We start by eliminating companies where either the promoters / management do not have a track record or have a history of shareholder unfriendly actions in the past.

We also eliminate companies which have a very low return on capital and / or employ excessive amounts of leverage.

The remaining companies are allocated to our analysts to track on a sectoral basis and depending on the valuations and the business outlook, we choose individual companies to invest in.

Although there is no strict rule, we would typically not invest in companies with market cap of less than Rs 700 crores. This is on account of the fact that we may not be able to enter / exit stocks below that market cap without a high impact cost.

Looking at your domestic stocks, you only have private sector banks in the portfolio, not PSU banks. The reasoning?

Public sector banks have more than 2/3 market share in the banking space in India. However given that they are struggling with past bad loans, capital scarcity and so on, it is expected that they will cede market share to their private sector counterparts.

Given that foreign banks operate in India under restrictions and that they are facing their own problems in their home countries, we think that private sector players in India are well positioned to gain market share in terms of assets and liabilities and grow profits at an above average rate for the coming years.

Also Read: Quick chat with Neil Parikh

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