Ask Morningstar: When 2 flexi-cap funds in a portfolio make sense

Aug 03, 2021

I plan to invest Rs 25,000 in each of the following funds: UTI Flexicap, Parag Parikh Flexi Cap, Axis ESG Fund and DSP Quant Fund. My investment horizon is 10 years. What are your thoughts?

We appreciate the fact that you are looking at investing over the long term.

  • Flexi-cap funds

Multi-cap funds have a mandatorily allocation of 25% each to small, mid and large cap stocks. Flexi-cap funds have the leeway to dynamically invest in small, mid and large cap stocks without any restriction on the level of exposure towards these three segments.

Parag Parikh Flexi Cap gives the investor a flavour of investing in international stocks like Alphabet, Amazon, Facebook and Microsoft Corp. The fund invests about 30% of its portfolio in international stocks and runs as a high conviction strategy with about 65% of its portfolio in the top 10 holdings.

UTI Flexi Cap Fund carries a Morningstar Analyst Rating of Bronze and stands out because of its diversified approach with a focus towards high quality growth stocks.

Both these flexi-cap funds have very distinct individual portfolios, despite falling in the same category. We think that it is a great combination of funds to remain invested in.

  • ESG

Axis ESG Equity Fund was launched in February 2020 and is currently run with a large-cap bias and also has some international exposure. Although the fund does not carry a long-term track record, it is managed by a capable team.

We are very positive on ESG funds and think ESG considerations will be an integral part of the investment process in the years to come. You can read more on ESG here.

We typically prefer funds that have built a strong track record and have remained consistent in their investment styles across market cycles. Having said that, we are aware that not many ESG specific funds have a long-term track record. Here is a list of the ESG funds.

  • Quant

DSP Quant Fund is relatively new and without a long-term track record. The fund aims to invest in companies with strong fundamentals and eliminates those which are highly leveraged, highly volatile and those where management incentives are misaligned or where there is poor earnings quality.

As mentioned earlier, we typically prefer funds that have built a strong track record and have remained consistent in their investment styles across market cycles. The investment objective and the underlying team in the case of both the funds look well placed to tide over the market volatility. We urge you to look at these funds keeping your investment goal in mind and your overall portfolio.

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