MULTIPLE -STRATEGY TREND RATED AUTOMATIC TRADING SYSTEM Portfolio Management Services (PMS) Performance Update 30 November 2010Vivek Mavani – Vice President and Senior Portfolio Manager
BRICS Growth Synopsis BRICS Growth is a Long only Diversified Equity Product aimed at generating Absolute Returns The Objective is : To generate Steady & Consistent returns over medium to long term Maintain Low Volatility Margin of Safety The Focus is therefore on Stock Picking with a Buy and Hold philosophy Invest in high quality and high growth companies at reasonable valuations and hold them over a period of time. (Not trade in & out frequently) Our conservative approach to managing investments, (especially during periods of volatility) is reflected in our superior performance.
Portfolio Update and Outlook Markets went through a correction in November and although the indices lost less than 10%, individual stocks saw prices correct by 10-30% in less than three weeks We were cautious throughout the last few months as highlighted in our previous updates Dilemma in a Bull Market. Choice between: Losing an Opportunity in a fast rising market Losing money in event of an anticipated sharp correction We were clear in our Choice. This led to short term underperformance against the benchmark’s in a rising market but We will continue to “Stick to Our Convictions.” This was evident during the corrective phase Last month, we held high levels of liquid balances, (due to part profit booking) at higher levels. We deployed part of the liquid balances at lower levels, during the corrective phase. We added Large Cap Banks (Axis Bank), Technology (Infosys) and Capital Goods Sectors (BHEL) Our contrarian call and conviction on ICICI Bank has yielded good results. Partly booking profits in Axis Bank at higher levels and re-entering at lower (5-10%) levels also has had a good payoff Although, we reduced our Mid-cap exposure especially where they had a very sharp run-up. Selectively Mid-caps could continue to be an attractive space as individual performances are likely to shine However, Credo of Sticking to Quality will always remain and will never be compromised
Compared to Top 20 Mutual Funds as of 30 Nov. 2010 Ranked on 6 month returns Performance Rank Scheme Name 6 Months % 1 Year % 1 Sundaram Rural India Fund - Growth 25.53 24.25 2 BRICS Growth 24.02 45.16 3 Kotak Lifestyle Fund - Growth 23.77 32.21 4 IDFC Premier Equity Fund - Plan A - Growth 23.66 38.11 5 HDFC Equity Fund - Growth 23.31 31.87 6 HSBC Unique Opportunities Fund - Growth 23.23 23.87 7 Sahara Wealth Plus Fund - VP - Growth 23.10 30.66 8 Religare Mid N Small Cap Fund - Growth 22.60 46.97 9 Reliance Quant Plus Fund - Ret - Growth 22.59 24.23 10 Sahara Wealth Plus Fund - FP - Growth 22.56 29.56 11 Sundaram Growth Fund - Growth 22.39 21.46 12 Quantum Long-Term Equity Fund - Growth 22.15 31.42 13 Franklin India Flexi Cap Fund - Growth 21.97 25.69 14 Templeton India Equity Income Fund - Growth 21.93 24.94 15 Religare AGILE Fund - Growth 21.86 14.01 16 IDFC India GDP Growth Fund - Growth 21.68 22.98 17 HDFC Mid-Cap Opportunities Fund - Growth 21.45 40.37 18 L&T Midcap Fund - Growth 21.38 27.44 19 Canara Robeco FORCE Fund - IP - Growth 21.26 36.02 20 Sundaram India Leadership Fund - Growth 21.25 23.87 The comparison includes 250 Diversified Equity Funds across all Fund Houses
Compared to Top 20 Mutual Funds as of 30 Nov. 2010 Ranked on 1 year returns Performance Rank Scheme Name 6 Months % 1 Year % 1 Religare Mid N Small Cap Fund - Growth 22.60 46.97 2 BRICS Growth 24.02 45.16 3 HDFC Mid-Cap Opportunities Fund - Growth 21.45 40.37 4 HSBC Small Cap Fund - Growth 18.65 39.10 5 Canara Robeco Emerging Equities - Growth 17.08 38.75 6 Reliance Equity Opportunities Fund - Growth 20.49 38.61 7 IDFC Premier Equity Fund - Plan A - Growth 23.66 38.11 8 DSP BlackRock Small and Midcap Fund - Growth 18.11 36.32 9 UTI Master Value Fund - Growth 20.37 36.17 10 SBI Magnum Sector Umbrella - Emerging Businesses - Growth 19.32 36.02 11 Canara Robeco FORCE Fund - IP - Growth 21.26 36.02 12 Religare Mid Cap Fund - Growth 20.32 35.96 13 Canara Robeco FORCE Fund - Ret - Growth 21.21 35.86 14 ICICI Prudential Fusion Fund - IP - Growth 19.65 34.90 15 ICICI Prudential Discovery Fund - IP - Growth 15.79 34.86 16 ING Dividend Yield Fund - Growth 17.05 34.85 17 BNP Paribas Future Leaders Fund - Growth 18.79 34.82 18 JPMorgan India Smaller Companies Fund - Growth 20.94 34.56 19 Taurus Ethical Fund - Growth 14.22 34.10 20 Kotak Midcap Fund - Growth 20.35 33.60 The comparison includes 250 Diversified Equity Funds across all Fund Houses
BRICS Growth NAV Trend Performance has been a result of our: BRICS Growth NAV v/s Indices (normalised) Stock Picking 160 Low churn in the portfolio, and 155 Conservative attitude (not taking 150 excessive risks) 145 140 Our Strategy has been to : 135 Buy during panics/declines 130 Use sharp rallies to partially book 125 profits Opportunistically ride the momentum 120 for a part of the portfolio (<15%) 115 Remain adequately liquid at all times 110 105 Adequate liquidity helps : 100 Protect against volatility 95 Provides enough courage and 90 conviction to buy into panics 85 1-Oct-10 1-Oct-09 1-Jan-10 1-Mar-10 1-Jun-10 1-May-10 1-Feb-10 1-Apr-10 1-Jul-10 1-Aug-10 1-Sep-10 1-Nov-09 1-Nov-10 1-Dec-09 Current cash/liquid balances ~ at 16% of the Portfolio BRICS Growth Nifty Sensex S&P 500 CNX Midcap
BRICS Growth Outperformance Trend BRICS Growth has delivered absolute & consistent returns across different market phases Significant out-performance in a range bound volatile market, (Stock Picking was the Key) Kept pace even during the sharp rally (Buy and Hold, Profit booking at higher levels) The fall in NAV during the corrective phase was lower (Large Cash Balances, 20+%) Between Between Between Performance 1 Oct. 2009 – 25 May 2010 * - 5 Nov. 2010 ** - 25 May 2010 * 5 Nov. 2010 30 Nov. 2010 Range bound with Sharp rally across Correction across volatility the board the board BRICS Growth 15.70% 36.73% -6.32% Nifty -5.44% 31.32% -7.12% Sensex -6.50% 31.10% -7.06% S&P 500 -2.84% 29.86% -8.00% CNX Mid-Cap 10.32% 31.54% -8.36% * 25 May 2010, Indices bottomed out and then the rally started . ** 5 November 2010, Indices peaked and the corrective phase started.
How did we do during periods of Volatility – 12 Biggest Falls between Oct.-’09 – Nov.-’10 How much a portfolio falls during a Points Points % Fall - correction / sharp downturn is as % Fall - % Fall - Date Fall - Fall - BRICS important as how much it gains in a Nifty Sensex Nifty Sensex Growth bull market 27-Jan-2010 -159.65 -3.19% -490.64 -2.92% -2.29% Protecting capital is often more important during periods of volatility 03-Nov-2009 -147.80 -3.14% -491.34 -3.09% -0.36% Downside protection equally 19-May-2010 -146.55 -2.89% -467.27 -2.77% -0.84% contributes to superior returns over a period of time 25-May-2010 -137.20 -2.78% -447.07 -2.71% -1.62% We have managed to fall less than 05-Feb-2010 -126.70 -2.61% -434.02 -2.68% -0.47% the indices during each of the sharp falls / panics since our inception 27-Oct-2009 -124.20 -2.50% -387.10 -2.31% -0.65% Large liquidity during periods of 21-Jan-2010 -127.55 -2.44% -423.35 -2.42% -1.32% volatility & a low beta portfolio helped. 01-Jun-2010 -116.10 -2.28% -372.60 -2.20% -1.24% CNX 16-Nov-2010 -132.90 -2.17% -444.55 -2.19% -1.44% Against Nifty Sensex Midcap 26-Nov-2009 -102.60 -2.01% -344.02 -2.00% -0.95% Beta * 0.4580 0.4577 0.5069 12-Nov-2010 -122.60 -1.98% -432.20 -2.10% -1.81% *Beta measures the volatility of the 07-Jun-2010 -101.50 -1.98% -336.62 -1.97% -0.99% portfolio relative to the index
Portfolio Breakup Sectoral Allocation Market Cap Breakup Oil & Gas Banking & 14.70% Finance Cash 19.48% 16.25%Infrastructure & Capital Goods 12.57% Branded Small Cap Garments & 19.98% Large Cap Retail 56.26% 16.36% Information Technology 11.16% Mid Cap FMCG Cash 7.51% 9.48% 16.25% Large Cap. More than Rs 5,000 crores Mid-Cap. Rs 1,000 - 5,000 crores Small Cap. Less than Rs 1,000 crores
Low Portfolio Turnover (Buy & Hold at work) Portfolio Turnover Re-deployed part of 1.00 liquid balances at lower levels 0.90 0.80 Turnover increased as we partly booked 0.70 profits at higher levels 0.60times 0.50 0.40 0.30 0.20 0.10 0.00 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Portfolio Turnover
Market Outlook Global macro economic risks will continue to weigh on the markets. Will definitely have repercussions on India. Domestic political risk, though not serious at this point cannot be under- estimated as there could be policy freeze due to political deadlock Excess liquidity globally flooding the Indian markets has been the primary reason for the sharp rallies across all emerging markets. Although there is a temporary pause in the fund flows, could resume in first quarter of 2011. Ride the momentum with funds flow, but be Selective Although Valuations have corrected in the last few weeks, they are still not very cheap. In fact they still look rich in some sectors although it is clearly a Buy on Declines Market The key concern is not so much about valuations but if earnings disappoint, price corrections in individual stocks could be sharp In sectors/stocks where valuations factor in fairly aggressive growth rates for FY11 & FY12, corporate performances could potentially disappoint given very high expectations Valuations v/s growth favour Mid-caps. Mid-caps could potentially be a very big opportunity going forward albeit with a fair degree of price volatility Large pipeline of IPO’s (more than Rs.50,000 Crs) could be a dampener for secondary markets as significant quantum of funds could be diverted in next 3-4 months Pockets of opportunities still available in stocks/sectors where growth is steady and valuations still leave room for upside. Declines/corrections in individual stocks could be used as entry points for fresh investments
Our Strategy “Time” in the markets is more important than “Timing” the markets Superior long-term sustainable returns are not made by timing the markets in terms of selling at the peaks. They are a result of purchase prices that are attractive in terms of valuations with adequate Margin of Safety Our strategy going ahead would continue to be, bottom up stock picking and be extremely selective: Buy on declines Use sharp rallies to partially book profits Opportunistically ride the momentum for only a small part of the portfolio Remain adequately liquid at all times The sectors that we are bullish and continue to be over weight are: Technology (Software Services), Banking & Financial Services, Capital Goods and Infrastructure Construction Oil and Gas including Gas Transportation & Distribution, Domestic Consumption themes like Paints, Branded Garments, Media etc.