Ask Morningstar: Underperformance forces you to look at strategy

A reader has to make a decision between ABSL Tax Relief Fund, Motilal Oswal Flexicap and Parag Parikh Flexi Cap.
By Nehal Meshram |  25-09-22 | 

What is your opinion on ABSL Tax Relief Fund and Motilal Oswal Flexicap? I have been investing in both since 2018 and looks like both underperform its peers and benchmark. I also invest in Parag Parikh Flexi Cap. Should I exit from both funds and invest only in Parag Parikh Flexicap?

ABSL Tax Relief 95 has recently witnessed a change in its portfolio manager. The fund was managed by Ajay Garg from 2006 to 2021. It is now being managed by Atul Penkar and Dhaval Gala. The fund follows a multi-cap approach and invests across market capitalizations. The former manager used a bottom-up strategy while selecting stocks, focusing on businesses with strong profitability and scalability. However, there is uncertainty around how the new managers will structure their portfolio. The fund also maintains higher allocation to mid and small cap space as compared to most of its peers. Hence, the fund could witness some volatility in the short term.

Motilal Oswal Flexicap too witnessed frequent changes in the lead manager over the last few years. Sidhharth Bohra, Niket Shah and Ankush Sood recently took the reins of the fund. The fund was also recently reclassified from Multi cap to Flexi cap and renamed as Motilal Oswal Flexi Cap Fund from Motilal Oswal Multicap 35 Fund. However, the broad contour of the portfolio remains unchanged. The fund has a good mix of both large, mid and small-cap companies. Although the fund mandate allows the managers to take a higher allocation to mid and small cap stocks, they haven’t breached the limit of 25%.

However, since the fund managers for both ABSL Tax Relief 95 and Motilal Oswal Flexicap have recently changed, it is important to see how the new portfolio managers navigate these funds.

Parag Parikh Flexicap is a flexi-cap fund that invests dynamically across large-, mid- and small-cap stocks. The fund had consistently maintained higher allocation to large-cap stocks. In addition to domestic companies, the fund invests in overseas stocks. The fund is managed by Rajeev Thakker who is an able and experienced manager. He follows a value style and invests in quality stocks that are available at reasonable or attractive valuations.

Motilal Oswal Flexicap and Parag Parikh Flexicap follow a concentrated approach to investing with around 30-35 stocks. With this approach Parag Parikh Flexicap has successfully navigated market volatility and generated superior long-term performance. Motilal Oswal Flexicap has delivered inconsistent returns.

We believe that one should diversify investments among different strategies and AMCs. This will help you in taking advantage of various investment processes and also reduce concentration risk.

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Articles authored by Nehal Meshram

Registered readers can post their queries by accessing the Ask Morningstar tab. Our team will answer SELECT queries relating to mutual funds, portfolio planning and personal finance. While we provide broad guidelines, we suggest you consult a financial adviser before making investment decisions.

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