In the mobile technology world, there can be no comparison between Android and iOS, the mobile operating systems of Google and Apple respectively. While many companies launch multiple devices with Android at its heart, only Apple produces phones that have iOS as the operating system. Apple focuses on releasing just one or two flagship phones a year, but they give it their best in terms of technology and hence, are hugely successful the world over.
In the Indian Mutual Fund space, it would be fair to consider Parag Parikh Financial Advisory Services Limited (PPFAS Mutual Fund) as the upcoming Apple of the Industry. This is because they have decided to launch only 1 equity fund that is PPFAS Long Term Value Fund and focus all their energies on the same. It is a diversified scheme advisable to investors having the following characteristics:
- Who know the perils involved in instant gratification
- For whom the term 'long term' means a minimum period of five years.
- Who get excited rather than repelled, when stock prices and valuations are low
- For whom purchasing a stock is no different from purchasing a business
As on August 2014, the fund had already garnered Rs. 475.72 crore. This surplus is a great feat considering the fact that the fund was launched in May 2013.
The firm is headed by Parag Parikh, a contrarian who has been in the Portfolio Management Services (PMS) for more than 17 years. One of his biggest expertise is in 'Behavioral Finance' an emerging theme in the financial world. He is also the author of 2 books "Stocks to Riches – Insights on Investor Behavior" and "Value Investing and Behavioral Finance: Insights in to Indian Stock Market Realities".
The fund house claims that it is different from its peers and the 7 differentiators are outlined below:
- They do not please everyone
- They do not have a Sales Team
- They strive to educate investors before investing
- They call themselves asset managers and not asset gatherers
- They will launch only one Equity Scheme
- They have a stake in their scheme’s success
- They do not accept money when it is easily available
Recently, we had a discussion with Rajeev Thakkar, Chief Investment Officer and Director of the fund house. He started the discussion by giving us a brief on PPFAS’ fund management approach:
- Have a single fund which can avail of all the opportunities that are available in the market
- The fund will not have a market capitalization bias
- There is a flexibility to go overseas to the extent of 35% of the portfolio
- The employees have their skin in the game which means that they have put their own money in the scheme which is disclosed on the website on a continuous basis. For instance, as of October 1, 2014, Rs. 41.68 crore (approx. 8.44% of AUM) has been invested in the fund by employees of the AMC.
Thakkar further states that they are not in a 100-meter race and hence he suggests that unless an investor’s time horizon is 5 years, he/she should not invest into this scheme. The fund management team is not trying to outperform the markets on a monthly, quarterly or yearly basis. Instead, they believe that 5 years is a representative period of a cycle and they are trying to do well over that period. Thakkar says that the team will not tactically time the markets as they are essentially into buying businesses and holding them for a long time period.
Ask Thakkar about his views on the market and the immediate response is: “We don’t have a clue on what is going to happen in the market in the next 3 months to 6 months. Our job is to identify good businesses, buy them and hold them as long as possible. Generally, we would like to buy and hold businesses for the long term”.
An interesting thing that we had noticed while glancing through the portfolio is that the global search engine giant Google, is the top holding of this fund in September 2014 with a 9.15% share. This stock first entered the portfolio in May 2014 and the allocation was 2.93%.
When quizzed about this interest in the company, Thakkar replied that Google is in the advertising space and the bulk of its revenue comes from this business. As a listed entity, it is only 10 years old and in this short period, the combined advertising revenue of Google is more than all the newspapers in the United States put together. Google has a competitive advantage in terms of search algorithm, brand name and recall, the computing size and is the biggest buyer of computing equipment at the lowest cost. Additionally Google’s dominance can also be seen in 3 major businesses that is email (Gmail), video streaming (YouTube) and Mobile Operating System (Android). All these benefits create an unassailable advantage for this stock. Furthermore, Google’s active investments in R&D which leads to creating things like Google Glass, Driverless cars and real-time satellite imaging makes it a one-of-a-kind company. Finally, coming to valuations, it is not excessive and is more or less similar or less than some of the domestic FMCG companies.
Overall, Thakkar’s fund which looks for value in the longer term is following the moral of the tortoise and the hare story which is “Slow and steady wins the race”.