Fund |
PGIM
Diversified Equity Fund |
Category |
Flexi Cap |
AUM (Rs Cr) |
556 (As on 31/01/2021) |
Fund Manager |
Mr Aniruddha
Naha |
Benchmark |
Nifty 500 TRI |
What
is PGIM Diversified Equity Fund?
PGIM Diversified Equity Fund is a flexi cap mutual fund.
From January 2021 onwards, it is known as PGIM Flexi cap
fund.
It has gained prominence and attention in recent times due
to its stellar performance and being able to outperform even other well-known
funds in its category.
It is important to dissect and understand the reasons for
its out performance rather than investing in it purely on the basis of recent
high returns.
What
is diversified equity mutual fund?
A diversified equity mutual fund is one which invests across
various caps and sectors and industries.
It is not restricted in any of the above sense.
Prime examples include:
- Flexi cap mutual fund
- Multi cap mutual fund
- Large & mid cap mutual fund and
- ELSS/Tax saving mutual funds.
These funds take exposure throughout the market and
therefore are well diversified.
Thematic and Sectoral mutual funds are not diversified
mutual funds since they are restricted within the theme and sectors.
What
is a Flexi cap fund?
A flexi cap mutual fund is one which does not have
restriction with regards to caps or sectors or themes or number of stocks it
can hold.
It needs to be invested 65% into domestic equities at all
times though.
The remaining can be either invested in international
equity, domestic equity, cash or debt as per the liking of the fund manager.
Due to less restrictions on compared to other equity mutual
funds, a flexi cap fund is very well diversified.
Additional reading: Click Here to read about the various types of equity mutual funds
What
is the difference between multi cap and diversified fund?
In reality there is not much difference between the two.
A multi cap fund needs to abide by the following rules:
- Minimum 25% in large cap stocks
- Minimum 25% in mid cap stocks
- Minimum 25% in small cap stocks
A diversified fund on the other hand has no such restriction
with regards to minimum allocation but can move across caps and sectors as it
wishes to.
PGIM
Diversified Equity Fund Strategy
The fund in the recent past has gravitated more towards ignored
sectors and caps.
This has meant a larger exposure and share towards even mid
cap and small cap stocks which are otherwise seen as aggressive.
Being a small fund house with lower AUM has meant that
liquidity did not become an issue.
Of course, this strategy could only work with stocks which
were fundamentally strong to begin with and were not picked merely since they
were ignored.
There is no guarantee nor any compulsion for the fund to
continue with this strategy.
PGIM
Diversified Equity Fund Portfolio
PGIM Diversified Equity Fund has historically been an
aggressive fund compared to its peers.
Most multi cap funds in the past would be more large cap
tilted with minimal exposure to mid and small cap stocks.
On the contrary PGIM Diversified Equity Fund had more or
less equal allocation to large caps and mid and small cap stocks.
Same was the case with its picks across sectors and themes
to the point of almost functioning as a value fund.
Therefore it was surprising that with the new multi cap rules
coming into effect from February 2021, the fund decided to convert itself to a
flexi cap mutual fund rather than staying on as a multi cap fund.
This could signal a shift in its strategy, something only
which time can prove.
Expecting the fund to function and perform like it has been
doing earlier would be naïve and silly.
As can be seen by the above image, the fund has always been more tilted towards mid and small cap stocks as compared to its peers.
This was even the case prior to the bull rally seen from the
second half of 2020.
So one cannot attribute the higher exposure to mid and small
cap stocks as a result of the bull rally.
Anyone who would have invested prior to the rally would have
made handsome gains considering the higher exposure to mid and small cap stocks
and the potential that these caps hold.
Unfortunately, that is not how an average retail investor
thinks, most investments and aum in a particular fund is after it has performed
rather than seeing and understanding its potential before investing.
The fund is overweight on
- Technology
- Engineering and
- Chemicals
While it is under weight on
- Financials
- Construction and
- Energy
Each fund in a category will have varying degrees of
exposure to a particular sector which should not be surprising.
The surprising part with PGIM Diversified Equity Fund is the
level of difference in sectors it is overweight on and under weight on.
It is more or less a multi cap fund in the flexi cap
category that is functioning as a value fund.
Reason
for recent performance
As mentioned earlier, the fund has historically taken higher
exposure to mid and small cap stocks.
This was the case even prior to the rally in these two caps.
Mid and small cap stocks were largely ignored by most mutual
funds since they were lagging in returns for quite sometime prior to the bull
rally in the second half of 2020.
Most returns prior to that were concentrated in a few
stocks.
The fund was able to pick most of these mid and small cap
stocks at attractive prices when most other multi cap funds had ignored them.
When the rally took place, the fund benefitted from the massive
spike in prices of mid and small cap stocks.
This is what led to the fund leaving behind other funds in
its category by a huge margin.
It will be interesting to observe what path the fund chooses
going forward, whether it decides to stick with its current strategy or move
towards newer pastures.
The fund is small in aum which provides it with more
flexibility but then again it has decided to convert itself to a flexi cap fund
rather than staying on as a multi cap fund.
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