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  • Which sectors are value based funds betting on?

    Quote by Neil Parikh in DNA, November 3, 2016

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    Which sectors are value based funds betting on?
    In a typical value fund, the fund manager simply tries to identify stocks whose prices do not reflect their fundamental worth/ DNA
    Iconic investor and billionaire Warren Buffett is famous for building wealth through un-loved stocks. Price is what you pay and value is what you get, he famously remarked. Like a maverick school teacher who focuses on the potential of the so-called back-benchers in class, fund managers who adopt, value style looks for high quality companies that are out of favour with the market.

    With Indian stock markets trading currently at fair valuations, the value style of investing has shone to prominence once again because chasing growth is becoming a costly affair, leaving little on the table for investors. Experts feel investors who invest money in value funds should have a minimum 3 year time-horizon.

    In a typical value fund, the fund manager simply tries to identify stocks whose prices do not reflect their fundamental worth. They believe that the market overreacts to good and bad news (like Brexit or RBI rate hike), resulting in stock price movements that do not correspond with a companys long-term fundamentals, giving an opportunity to profit when the price is deflated.

    Neil Parag Parikh, chairman and CEO, PPFAS AMC told DNA Money, Investing is for making your money grow. It is not for excitement. Value investing may sound boring, but that is the only way you grow your wealth in stock markets.

    In Indian mutual fund industry, there are 12 schemes (like Quantum Long-Term Equity, Templeton India Growth, Birla Sun Life Pure Value and Parag Parikh Long Term Value) follow mainly value based investment approach. Out of which, three are ETFs tracking Nifty 50 NV 20 Index as benchmark. Apart from these, there is a global fund JPMorgan US Value Equity Offshore Fund, which invests primarily in a value style biased portfolio of US companies. Other nine are diversified equity mutual funds investing predominantly in the value domestic equities, says HDFC Securities analyst Dhuraivel Gunasekaran.

    Considering the performance of the value based schemes, most of the schemes managed to outperform the equity diversified funds and the broader benchmarks in all the time frames. Especially in the last one year, the value based schemes showed relatively better performance than the growth oriented schemes.

    Please remember this is a time when valuations of Indian markets and stocks have tended towards fairly valued. Further, the outperformance also was attributable to considerable allocation into midcap stocks, says Dhrubajyoti Basu, a financial advisor.



    A quick analysis of stock holdings of value based funds shows that they are betting big on sectors that have done badly in the past one year. Pharma and software (IT) sectors are down 13-14% in the past one year, if you go by the sectoral indices, performance. PSU banks also have done badly. Yet, these are the sectors value-based funds have chosen, over current performers like auto, metal, oil & gas.

    Agrees, Anil Rego, founder of Sebi registered investment adviser Right Horizons. He feels that funds adopting value investing are an all-season theme. Sometimes chasing growth opportunities may cost a lot. Value investing works well at all times. It can give you results in a bear market, or spot hidden opportunities even in a bull market.

    Value based schemes can be considered by medium to high risk profile investors who want to hold for the long run, experts have said.

    The original article could be seen here.

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    Sponsor: Parag Parikh Financial Advisory Services Private Limited. [CIN: U67190MH1992PTC068970], Trustee: PPFAS Trustee Company Private Limited. [CIN: U65100MH2011PTC221203], Investment Manager (AMC): PPFAS Asset Management Private Limited. [CIN: U65100MH2011PTC220623]