Crash, what crash? These 3 flexi-cap funds have not cracked under pressure

October brought a bloodbath to the stock market, and November hasn't been much kinder. With the BSE 500 down 10.3 per cent since its peak on September 26, equity investors have been hit hard. Headlines are blaring warnings, and foreign institutional investors (FIIs) are pulling out at extraordinary levels, sucking out Rs 1.45 lakh crore from the market since October. For many, this period of turbulence has been a stark reminder of how unpredictable markets can be.

Yet, amid the chaos, some flexi-cap funds stood out—not because they avoided losses altogether, but because they navigated the downturn better than most. These funds, each with at least a year of history, used an intriguing mix of strategies to protect their investors' money.

The leaders in resilience

1. Parag Parikh Flexi Cap Fund: -4.31 per cent

2. Helios Flexi Cap Fund: -6.12 per cent

3. HSBC Focused Fund: -6.54 per cent

Note: Returns calculated for direct plans from September 26 to November 17, 2024.

Parag Parikh Flexi Cap Fund

Parag Parikh Flexi Cap Fund , with over Rs 82,000 crore asset base (14 per cent of the category's total), has long been regarded as a steady hand in the market.

The fund has a stellar track record, outperforming its benchmark 100 per cent of the time over any five-year period. In 2024 alone, it collected Rs 18,140 crores, reflecting strong investor confidence.

What sets the fund apart is that it hungers for growth by taking a cautious approach. For starters, the fund primarily invests in large-cap stocks (90 per cent) and follows a value-driven strategy, with a P/E ratio of 17.57 compared to the category median of 28.31.

Secondly, the fund has a well-established history of deploying assets into international markets, a strategy that continues to define its approach.

Thirdly, it currently holds a substantial 20.5 per cent in cash and cash equivalents, which has helped it weather recent market turbulence. Since the fund follows a value investing strategy, it only invests when it finds valuable opportunities, leading to a history of holding significant cash when the right investments are not available.

The fund manager has consistently emphasised a cautious approach, stating they prefer to wait for compelling opportunities before deploying cash. In a recent interview , they remarked that they are "happy to underperform" in the short term if it means making better investments for the long term. This disciplined approach reflects the fund's commitment to its value investing philosophy.

Based on the most recent disclosure, the fund's "hit rate"—the percentage of stocks that performed better than the index—stood at 55 per cent. On average, these outperforming stocks delivered returns 4.5 per cent higher than the index, while the remaining 45 per cent underperformed, falling just 3.5 per cent more than the index.

The top-10 holding in winning bets outperformed by a median margin of 2.6 per cent. Some notable winners include Meta and Google (both accounting for more than 3 per cent of net assets). They outperformed by 10 and 7 per cent, respectively.

Among domestic holdings, HCL Technologies shone the brightest, beating the index by 5.6 per cent.

Helios Flexi Cap Fund

Launched in November 2023, this fund is already making waves, growing to Rs 2,145 crore in net assets within a year (43rd largest among 94 flexi-cap funds). It has delivered an impressive 10 per cent alpha in its first year, a rare achievement for such a young fund (only the 12th such fund ever to be able to achieve this).

The fund follows a blended investment approach, with a P/E of 29.85, slightly above the category median of 28.31. What sets Helios Flexi Cap Fund apart is its unique allocation strategy. As per October 2024 disclosures, a fifth of its money is in stocks held by very few diversified equity funds.

Some of these unique picks include:

The fund generated a 52 per cent hit rate in the past two months, with the hit stocks outperforming the index by an average return of 5 per cent.

Motilal Oswal Financial Services, One 97 Communications (Paytm) and Piramal Pharma , each accounting for at least 2 per cent of assets, generated an alpha of 16, 14 and 7 per cent, respectively.

The top 10 winning calls (based on asset allocation) were the most notable, as they outperformed the index by a median of 3.8 per cent.

HSBC Focused Fund

Launched in July 2020, HSBC Focused Fund takes a growth-oriented approach, with a relatively high P/E of 31.6. It has a strong tilt towards mid- and small-cap stocks, comprising 54 per cent of its portfolio.

Historically, the fund's relatively more aggressive tilt has been a case of fewer hits and more misses. It has struggled since its inception, outperforming the BSE 500 just 7 per cent of the time over any three-year period.

However, this time, the fund has proven more resilient. Based on October 2024 disclosures, slightly more than half of its portfolio has beaten the benchmark by an average of 7 per cent.

Among the winning calls, the top-10 allocated stocks were the most notable, as they outperformed by a massive 4.8 per cent. Multi Commodity Exchange Of India , Rainbow Children's Medicare and Whirlpool Of India generated an alpha of 17, 10, and 10 per cent, respectively.

What this means for investors

Market volatility is a litmus test for investment strategies, highlighting how fund managers balance risk and reward.

That said, it's crucial to note that the analysis presented here is based solely on these funds' performance over the past two months and their recent holdings. This does not imply that these funds consistently fall less during downturns or that they are inherently better equipped to handle market turbulence.

While short-term performance can offer insights into a fund's management style, it should not be the sole criterion for assessing its suitability.

A comprehensive evaluation requires analysing a fund across multiple market cycles to truly gauge the mettle of its fund manager.

As always, the key to successful investing lies in staying the course and focusing on the long term. Reacting to short-term movements often causes more harm than good.

Also read: White-hot momentum funds face reality check after market turns red