NEW DELHI: Nassim Taleb, the Lebanese-American author of bestseller Skin in the Game, takes the difference between theory and practice among investment managers very seriously.He once famously said, “Don’t tell me what you think, show me your portfolio.”A top domestic mutual fund manager did exactly this last week. Kalpen Parekh, who heads DSP Mutual Fund and oversees assets worth Rs 77,500 crore, revealed his personal portfolio allocation while stressing the importance of diversification.Parekh, who aims to buy his own house within a year, has constructed a portfolio with relatively more equity exposure. He has allocated 40 per cent of his investment to equity funds, 40 per cent to short-term debt funds, 12 per cent to global funds (mining and energy), 5 per cent to India Value Fund with energy and commodity exposure and 3 per cent in hedge funds.“Nearly 45 per cent of my investments are in DSP’s Equity Fund and Quant Fund. Very recently, I have added a little bit of natural resources, because if there is hyperinflation going ahead, energy and commodity prices could shoot up. So this could act as a hedge against inflation. These companies are also trading at multi-year lows and have very high dividend yields,” Parekh said.Talking about his global exposure, Parekh said his investment in gold mining gives him exposure to international companies as well as gold, fulfilling two objectives.Gold has been one of the best performing asset classes this year. In international markets, the commodity trades at an eight-year high, while in rupee terms the yellow metal is at an all-time high. In dollar terms, gold has gained over 19 per cent year to date, when most equity indices are trading in red for the calendar year.“Interest rates have been in the 6-8 per cent range for corporate bonds in last two years. They are not very high. Which is why it is prudent to buy something in the middle of the curve –funds with a three-year portfolio maturity, so that volatility and fluctuations are very low,” Parekh explained his exposure to short-term debt funds.His moderately higher exposure to debt also stems from the fact that he finds equities very expensive at current levels. The 50-share Nifty, which traded at 17 times its earnings at March lows, now trades at 28 times.BSE data compiled by Ace Equity showed over 1,100 stocks trade at price to earnings ratios of 20 and above. As many as 275 stocks, including HDFC LIfe Insurance, Adani green Energy, Ujjivan Financials, TV18 Broadcast and GSK Pharma, among others, trade at more than 100 times their earnings.Parekh said historically, a Nifty PE level of 30 has acted as the upper limit, which has been hard to breach, but this level is not really safe in the current rally. “In the past, we never thought Nifty would breach the 25 mark, but it went on to cross 27 and 28 levels. So, never say never. Will I buy such high PE, the answer is no. I will moderate my exposure when PE becomes so irrational,” he said.He said the price to book (PB) ratio is a more stable measure to analyse equities, and along with PE, it can help in decide if securities are cheap, expensive or somewhere in between.“Right now, the market is trading at above average levels. They are not at the highest band of expensiveness because the price to book is still low,” he said.
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