Last Updated on December 29, 2021 at 5:09 pm
DSP Value Fund is an open-ended equity scheme following a value investment strategy. That is, it will try to buy “equity and equity-related or fixed income securities which are currently undervalued”.
The fund was launched on Dec 10th 2020. So it only about seven months old and has an AUM of Rs. 476.23 crores as of Jun 30, 2021. The fund has caught the attention of DIY investors because it can invest up to 35% of its assets in foreign securities. So those worried about the growth in popularity of Parag Parikh Flexicap Fund have started wondering if this could be a low-key substitute.
Investors with experience holding funds like ICICI Value Discovery and Quantum Long Term Equity Value Fund would tell you the frustrations of holding “value-oriented funds”. Value investing, by definition, will not work all the time. If the fund manager sticks to the investment mandate, there will be long periods of poor returns. By the time the fund starts to fire (like, for instance, since the market recovery last year), many investors would have moved on. See: Is it time to exit ICICI Value Discovery & Quantum Long Term Equity? And ICICI Prudential Value Discovery Fund: On the comeback trail?
Therfore, DSP Value Fund or any value-oriented fund for that matter is only for patient investors who are willing to wait patiently. This means they should have a well-diversified portfolio to bear the brunt of such poor returns. This means that they also believe that the fund managers value picks are “discovered” by the market and do not end up as traps. So the bottom line (that many WB, CM fans fail to mention) is, value investing is a risky proposition.
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If we consider the since inception performance of DSP Value Fund, it looks impressive. Notice the decrease in volatility from April 2021. This is due to the increase in international equity exposure (see below).
However, NIfty 50 TRI is the not benchmark of DSP Value Fund. The benchmark is NIfty 500 Value 50 TRI, and that does not look good.
However, one should not rush to judge the fund prematurely based on this. Its peers – value-oriented funds from ICICI and Quantum have also performed similarly in the same period.
The main reason not to judge the fund is that the NIfty 500 Value 50 index is extremely volatile, as shown before. This is a 5-year rolling return comparison of the index with Nifty 50 TRI from that article.
If the NIfty 500 Value 50 index fund does well, it does quite well. If it performs poorly, it can do so quite noticeably. So the reason why ICICI Value Discovery changed its benchmark to this factor index is when the going is bad for “value”, the fund can easily beat it. When is the going is good, as it has been over the last few months, it can be hard to beat.
So in its short history, DSP Value fund has performed reasonably, to say the least. Let us now look at it other metrics. This is the asset type allocation history. You can how it has gradually purchased international equity a couple of months after launch.
This is the market cap allocation history for the Indian equity allocation. The bonds and international equity is referred to as ‘others’. It has so far had a good mix of large, mid and small caps stocks.
This is the PE history of the fund with its peers. UTI Nifty Index fund shall serve as the benchmark. A trademark trait of a value-oriented fund is lower PE and PB than the NIfty at all times. This not a “good thing”, as some investors believe. This is what leads to the months and months of underperformance!
The price to book value history is shown below.
If you worried about the higher PE and PB value of the Parag Parikh Flexicap Fund, don’t be! A fund that believes in value investing has no restriction to be a value-oriented fund at all times! DSP Value Fund has behaved like a value-oriented fund sticking close to its category peers.
In summary, DSP Value Fund is indeed an interesting fund and worthy of investor consideration. Its only drawback at the time of writing is its lack of history through market ups and downs. Since it is mandated to stay value-oriented, its international exposure may not help it much when the cycle turns, and growth investing starts to shine again. Then the fund will go through extended periods of underperformance wrt Nifty 50 TRI. Will investors fascinated by it now keep faith with it then? I think not.
If there is really room in your portfolio for such a fund and if you can remain patient, willing to take a chance with a young fund, then you can consider investing. However, we believe value-oriented funds are not suitable for most retail investors.
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