A Fundamentally Indexed ~  Multi. Cap. Fund An endeavour to identify “Value-for-Money“ and buy “Growth at Reasonable Price...
<ul><li>The Holy Grail of Investing  </li></ul><ul><li>Both Individual & Corporate investors face the challenge ‘ How & Wh...
<ul><li>GAP in MARKET OFFERING  for Investors </li></ul><ul><li>Market does not offer a  Mid Cap. Or Multi. Cap. ETF  and ...
“  A process driven approach to Scan entire Market for an Opportunistic Portfolio “  ( Free of any Fund Manager, Style, Co...
Performance  ( Compounding Affect )  ::  Portfolio vs Benchmark <ul><li>The Fig. shows the  “ Annualized CAGR Return “  co...
Having started at the peak of the Market ~ The fund in spite of being largely in Mid Caps. falls inline with the Larger In...
P/E,  Cash PE , EV/Sales , P/B Earnings Yield , RoIC , FCF Yield , Div. Yield D/E , Z-Score , Beta , Sharpe Ratio Of Co.s ...
~450 THE FUND PROCESS ~  Market vs Alpha Portfolio  ( Return , Risk & Quality )
Why  ‘ Active Fundamental Investing ‘! Tilting the portfolio construction basis from  Market  Cap. & Liquidity  ( Like in ...
The XYZ Differentiation <ul><li>Low Fixed -Cost Structure.  </li></ul><ul><li>Profit Sharing on Out-Perf. only.  </li></ul...
<ul><li>Commercials ::   ( Indicative & Tentative ) </li></ul><ul><li>Investor Commitment  ::  ( Rs.100 deployed, fees to ...
<ul><li>“ What could be more advantageous in an intellectual contest —whether it be chess, bridge, or stock selection than...
 
Upcoming SlideShare
Loading in...5
×

Multi cap pms

297

Published on

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
297
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "Multi cap pms"

  1. 1. A Fundamentally Indexed ~ Multi. Cap. Fund An endeavour to identify “Value-for-Money“ and buy “Growth at Reasonable Price“ Varun Goenka JM Financial Group. +9004670600 [email_address]
  2. 2. <ul><li>The Holy Grail of Investing </li></ul><ul><li>Both Individual & Corporate investors face the challenge ‘ How & Where to Invest ‘. </li></ul><ul><li>“ ETF’s / Index Funds & Mutual Funds “ provide an elegant platform ; which are in turn benchmarked to INDICES for performance and risk measure. </li></ul><ul><li>Indices provide an ariel and crisp view of the performance of markets world-wide . </li></ul><ul><li>In India ETFs ( Nifty , Nifty Jr., Banking ) & Indices ( BSE 200 , BSE 500 etc ) are dominant. </li></ul><ul><li>However the Market still lacks a Multi-Cap. Or Mid-Cap. ETF , which is where is Alpha resides ! </li></ul><ul><li>A Step Ahead : Pertinent Question for keen Investors !! </li></ul><ul><li>> Timeless Investing Mantra : </li></ul><ul><li>A high – quality management , proven financial track record & a strong business franchisee available at a reasonable price. </li></ul><ul><li>However how does one identify a portfolio of stock of such attributes from a heap of over ~500 investible companies , that too consistently and through all market ups & downs !! </li></ul><ul><li>> Conventional vs Strategic Thinking :: </li></ul><ul><li>Conventional ‘ Index ‘ based strategy gives credence to ‘ Size i.e. Market Cap. ‘over ‘ Fundamentals & Earnings Quality ‘. </li></ul><ul><li>( For Eg. There are around 6 co.s in Nifty with an total weight of 7% & Market Cap. Of 2lac crs which have negative or very high PE’s and weak current earnings. Contrary to this are 3 other co.s with the same weight in Index , but whose PE’s are <15 & they have high Return on Capital ) </li></ul><ul><li>How can we construe a high – quality , high – performance portfolio of quality companies at a reasonable price from a deep and complex market for significant out-performance vs the Indices in the long-term. </li></ul>A Complex Problem ~ An Elegant & Simple Solution !!
  3. 3. <ul><li>GAP in MARKET OFFERING for Investors </li></ul><ul><li>Market does not offer a Mid Cap. Or Multi. Cap. ETF and is heavily weighted towards Large Caps. </li></ul><ul><li>Investors need to go below the front-lines and even larger-midcaps to generate higher returns. </li></ul><ul><li>INDEX vs FUNDAMENTALS </li></ul><ul><li>In conventional INDICES ; Market Cap. is given higher regard over ‘ Fundamentals & Earnings Quality ‘. This leads to several large relatively inferior companies getting a disproportionate weight in the Index. </li></ul><ul><li>INCREASING MARKET SIZE & No. of INVESTIBLE Co.s </li></ul><ul><li>There are a large no. of stocks listed now ( Over 500 Investible stocks ) ; a host of new-listings via IPO’s happening every year ; & several Small Cap. cos. now becoming investible Mid Size Cos ~ Investors need a fund which can scan the “ Entire Market “ for an opportunistic portfolio ; consistently and through all market ups and downs. </li></ul><ul><li>MARKET TIMING ~ Impossible </li></ul><ul><li>‘ Market Timing ‘ is an impossible task ~ thus investors need a fund which invests max. money in the market in high–quality, value–for–money co.s which are operationally strong to grow and can also to survive downturns. </li></ul><ul><li>CONSERVATISM & QUALITY </li></ul><ul><li>Max. money has been lost when both “ Earnings & PE’s “ contract together. This leads to almost permanent and prolonged capital loss like seen in Real Estate , Media & Cyclical stocks in previous crashes. Thus investors need a portfolio of stocks which are “ Fundamentally superior with strong operations “ ; which not only survive downturns but also recover much faster than their peers to capture rebound in demand and sentiment. </li></ul><ul><li>PROCESS driven </li></ul><ul><li>Globally ~ albeit almost the entire money is managed through “ Quantitative based Processes “ , be it Equities or Fixed Income . Credit Rating Co.s , Hedge Funds , Index Funds & ETF’s all rely on a process – driven approach. </li></ul>Opportunity at a Critical Market Juncture ~ XYZ the Need of the Hour !!
  4. 4. “ A process driven approach to Scan entire Market for an Opportunistic Portfolio “ ( Free of any Fund Manager, Style, Consensus, Market Timing & Emotional Bias ) 4 Market Cap. Domains 8 Thematic Domains 15 Sector Domains <ul><li>CONVENTIONAL </li></ul><ul><li>( Market Cap. Based ) </li></ul><ul><li>ETFs / Indices ( NSE & BSE ) </li></ul><ul><li>Sector ETFs / Indices </li></ul><ul><li>NO MIDCAP or MULTCAP ETF in market. </li></ul><ul><li>__________________ </li></ul><ul><li>OPPORTUNITY </li></ul><ul><li>( Fundamental Based ) </li></ul><ul><li>A MULTI-CAP & </li></ul><ul><li>MULTI SECTOR </li></ul><ul><li>High Quality </li></ul><ul><li>Portfolio with high </li></ul><ul><li>potential and lower </li></ul><ul><li>long term risk. </li></ul>CAPTURE :: ‘ Value –for- Money ‘ & ‘ Growth at Reasonable Price ‘ > Alpha Generation with lower risk A Deep & Complex $1.5trn Market of over ~500+ Investible Co.s
  5. 5. Performance ( Compounding Affect ) :: Portfolio vs Benchmark <ul><li>The Fig. shows the “ Annualized CAGR Return “ comparison. </li></ul><ul><li>Thus for an Investor starting in 2006, the CAGR Return would have been 20.6% ( as shown ) VS BSE 200’s 17.3%. </li></ul><ul><li>2006-2010 was the period of Max. challenge. ( 4 Major Crash + 8 Major rallies ) = 12 high volatility quarters vs 19 in total. </li></ul>Longer the Investment Tenure , Higher the Compounding & Out-performance vs Benchmarks. The Fund has its down periods but has scope to significantly outperform for 3yr+ periods.
  6. 6. Having started at the peak of the Market ~ The fund in spite of being largely in Mid Caps. falls inline with the Larger Indices & Out-performs the Mid & Small Cap. Indices handsomely. Performance ( Stress Periods ) :: Portfolio vs Benchmark
  7. 7. P/E, Cash PE , EV/Sales , P/B Earnings Yield , RoIC , FCF Yield , Div. Yield D/E , Z-Score , Beta , Sharpe Ratio Of Co.s : { Healthy Current Operations ; Conservative & Strong Balance Sheet ; Low Valuation Ratios , High Return Ratios & High Cash-flows } THE FUND PROCESS ~ The Crux Higher Return with Lower Risk : { Scope of Valuation Multiple Expanding ; Co.s doing better during stress periods ; Lesser Equity dilution & Debt Burden ; Lower Beta & Higher Risk-adjusted Return }
  8. 8. ~450 THE FUND PROCESS ~ Market vs Alpha Portfolio ( Return , Risk & Quality )
  9. 9. Why ‘ Active Fundamental Investing ‘! Tilting the portfolio construction basis from Market Cap. & Liquidity ( Like in Indices ) to Fundamentals , leads to lower-risk & higher return over longer time. A fundamental based approach trades short-term momentum for long term value , giving higher margin of safety. The return is enhanced by both ‘ Earnings & Multiple expansion ‘.
  10. 10. The XYZ Differentiation <ul><li>Low Fixed -Cost Structure. </li></ul><ul><li>Profit Sharing on Out-Perf. only. </li></ul><ul><li>Variable Cost –structure applicable only IF Profit above Principal. </li></ul><ul><li>Simple & Measurable Risk easily comparable to the market. </li></ul><ul><li>Considerably Lower risk vs Market by both Fundamental & Quantitative Risk as. </li></ul><ul><li>Relative Out-performance vs Market for over 3/4 th of the Quarterly periods. </li></ul><ul><li>High Absolute return over long – term. </li></ul><ul><li>The Portfolio is primarily into Mid Caps. with approx. ~5% each of Large Cap. & Small Caps. </li></ul><ul><li>Relatively less liquid than Large Cap. </li></ul><ul><li>Low & Acceptable Portfolio turnover </li></ul><ul><li>Evidence recommends a Min. commitment period of 36months for material out-performance vs benchmarks. </li></ul><ul><li>The fund does not time the market and seeks to identify ‘ Value –for- Money during all market phases. </li></ul><ul><li>INDIA’S first Alpha Fund towards </li></ul><ul><li>Business like Investing ; </li></ul><ul><li>Weigh Fundamentals over Price. </li></ul><ul><li>Benchmarks Value-for-Money , Quality & Risk in addition to Return. </li></ul>The Outperformance Pillars ~ A MULTI-CAP & MULTI SECTOR Opportunity <ul><li>Quality measured by Current Financial health & Operations of co. </li></ul><ul><li>Price vs Value measured by Financial Ratios. </li></ul><ul><li>Performance Track record of Co.s . </li></ul>
  11. 11. <ul><li>Commercials :: ( Indicative & Tentative ) </li></ul><ul><li>Investor Commitment :: ( Rs.100 deployed, fees to be amortized and deducted from profits during rebalancing ) </li></ul><ul><li><1crs. - Fixed 2% </li></ul><ul><li>>1cr. <3crs. - Fixed 1.5% </li></ul><ul><li>>3cr. < 5crs. - Fixed 1% </li></ul><ul><li>>5crs. - Fixed 0.5% </li></ul><ul><li>  </li></ul><ul><li>Performance Linked Fees </li></ul><ul><li>( 30% Profit Share on Post-Costs return , above Benchmark Out- performance ~ subject to No-Capital Loss ) </li></ul><ul><li>Eg. Index Return 15% , Net Portfolio Return 17% ,Profit Share related fees 0.6%. </li></ul><ul><li>Index Return -15% , Net Portfolio Return -13% , Profit Share related fees 0%. </li></ul><ul><li>Exit Load : Min. Lock-in 18months, Redemption before that = 2% fees. </li></ul><ul><li>Investor Option ( >2cr. ) ~ Staggered deployment , Stop Loss , Redemption of profits. </li></ul><ul><li>______________________________________________________________________________________________ </li></ul><ul><li>Portfolio Re-balancing Frequency :: Quarterly. </li></ul><ul><li>Investor Communication :: Monthly ( Stocks & respective Weights ; A Qualitative Comparison of Portfolio vs Benchmark ) </li></ul>Commercials & Operations
  12. 12. <ul><li>“ What could be more advantageous in an intellectual contest —whether it be chess, bridge, or stock selection than to have opponents who have been taught that thinking is a waste of energy ? “ - WARREN BUFFET </li></ul><ul><li>&quot; The Fundamental Index method is a financial innovation so logical that it is compelling to any and all who believe that common sense is a required ingredient for portfolio construction &quot; - BILL GROSS , CIO PIMCO. </li></ul><ul><li>&quot; Indexing is a powerful force in the investing industry , and I am not a man to question success - but to my mind the Fundamental Index method represents too good of an improvement to ignore &quot; - CHARLES SCHWAB , Chairman The Charles Schwab Corp. </li></ul><ul><li>&quot; Fundamental Indexing is an idea both elegant and profound, yet some very smart people have trouble grasping the idea because of their unexamined assumptions about how the market works. - JACK TREYNOR , President Treynor Capital Management Inc. </li></ul>Has Conventional INDEX Methodology been challenged enough !!

×