Why DSP MF Kalpen Parekh is bullish on long-term debt

After staying away from investing for four to five years, Parekh invested in the DSP Strategic Bond Fund, an actively managed duration fund. In an interaction with the mint for the Guru Portfolio series, Parekh said the fund is currently invested in debt instruments with a tenor of eight to nine years. In this series, leaders in the financial services industry share how they manage their money.

portfolio mix

Parekh’s portfolio has returned 29% over the past 12 months.

“The market is expensive right now, so a lot of my additional investments are going into hybrid funds,” Parekh says. He likes hybrid funds, especially in expensive markets, because they have the built-in ability to rebalance asset allocation. per market valuation – low market valuation: high equity, low debt; high market: low equity, high debt Some hybrid funds, such as multi-asset allocation funds and equity savings funds, are – Exposure to other defensive assets such as options also increases. He put option prices rise during market corrections when the market looks expensive.

He says he follows the principle of investing for good and not withdrawing unless you need the money.

Hybrid funds such as DSP Multi-Asset Asset Allocation Fund, DSP Dynamic Asset Allocation and DSP Equity Savings Fund make up 26% of Parekh’s total portfolio. Equity funds account for 35% of his exposure, global equity funds account for his 14% and debt funds account for his 15%. His gold exposure through DSP World Gold Fund of Funds (invests in gold mining companies) and government-run sovereign gold bonds is 10%. Almost 87% of Parekh’s portfolio is in his DSP mutual fund scheme as all his DSP employees can invest only in his DSP’s schemes. The remaining investments were made prior to joining his DSP.

what worked

He says some theme-based funds have worked well for him in the last year. For example, DSP Natural Resources and New Energy Fund returned about 45%. The fund accounts for 6% to 7% of Parekh’s total portfolio. He said both the global and domestic natural resources sectors were performing well, which contributed to the fund.

DSP Healthcare and DSP Global Innovation Fund also performed well. The recovery of global technology companies helped the latter. The DSP Value Fund also contributed to Parekh’s portfolio as it had zero exposure to the banking sector, which has underperformed over the past year. Instead, the fund had exposure to global funds that invest in global technology companies and global luxury goods companies that have performed well over the past six months. The fund also has 6.5% exposure to Berkshire Hathaway, the holding company of legendary investor Warren Buffett.

Separately, DSP Small Cap Fund, which primarily invests in micro-cap stocks, has performed well in Parekh’s portfolio.

investment style

Parekh says he is an investor with very low portfolio turnover. “I rarely like to switch, and I rarely like to redeem my investments,” he says.

He doesn’t like to record capital gains. This is because you not only lose the benefit of compound interest, but also the tax consequences of capital gains.

Rather than focusing on specific market caps (large-cap, mid-cap, small-cap), Parekh categorizes investments into growth and defensive buckets. As the market corrects, he increases his allocation to growth investments. When the market turns high, he increases his allocation to defensive investments such as hybrid funds, bonds and gold.

Mr. Parekh adheres to an asset allocation approach and simply rebalances the portfolio when changes in market valuation move the portfolio away from the target allocation.

For example, Mr. Parekh’s target asset allocation is a 65:35 (equity:debt, gold) ratio. As market valuations remain strong, he is making new investments in a 50:50 ratio. Although the market rally has increased the value of his stock investments, he aims to maintain his 65/35 target allocation by increasing his allocation to defensive assets.

“As investors, we can’t do too much about valuations. There are concerns about broader market valuations right now. Are valuations likely to fall or remain high? No one knows for certain whether it is true or not. Like last year, the market looked overvalued and we thought a correction was needed, but that didn’t happen. Prices rose even more in some markets. “I did,” he points out.

investment philosophy

Parekh says he doesn’t place too much emphasis on short-term profits. “For me, annual returns are not that important. I believe in staying invested for decades. My investing mantra is simple: pursue reasonable returns over unreasonable amounts of time. That’s how you realize the benefits of compound interest. And how can you stay invested for so long? By ring-fencing your portfolio, you reduce the impact of external shocks and market volatility.” explains Parekh.

“Hybrid funds will automate that for you. You won’t have to do anything to increase your equity exposure or sell your investments. When the stock market corrects, it will automatically increase your investment in bonds (or gold, etc.). (defensive assets) and invest in stocks. When valuations become expensive, the opposite is true,” Parekh says.

He added that when the market is expensive; According to the data, there is not much difference between his 3-5 year returns for stocks and bonds. “This rule seems to work for him 80% of the time, but not 20% of the time,” he says.