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* DSP India Fund is the Company incorporated in Mauritius,under which ILSF is the corresponding share class
November 2021
| People | Processes | Performance |
Equity Savings Fund](https://image.slidesharecdn.com/dspequitysavingsfundnovember2021-211203052642/75/Dsp-Equity-Savings-Fund-1-2048.jpg)
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Dsp Equity Savings Fund
- 1. [Title to come] [Sub-Titleto come] Strictly for IntendedRecipients Only Date * DSP India Fund is the Company incorporated in Mauritius,under which ILSF is the corresponding share class November 2021 | People | Processes | Performance | Equity Savings Fund
- 2. 2 Desirable Fund Characteristics… If you could invest in only one Fund,hypothetically,fora decade or more, which of the followingcharacteristics would you want that Fund to have? Targeting Lower Drawdowns Limiting Risk of Permanent Loss of Capital Counter Cyclical Approach Focus on Absolute Returns Multi-Asset Portfolio Seeking Returns Higher of Benchmark orInflation
- 3. 3 DSP Equity SavingsFund Targeting Lower Drawdowns Limiting Risk of Permanent Loss of Capital Counter Cyclical Approach Focus on Absolute Return Multi-Asset Portfolio Seeking returns Higher of Benchmark orInflation DSP Equity Savings Fund Disclaimer: This fund is positioned to have above characteristics. However, there is no guarantee that this fund achieves the same all the time. Investors are requested to seek appropriate professional advice. Read offer documents before investing.
- 4. 4 What is DSPEquity Savings Fund (ESF) Source: Internal. DSP Equity Savings Fund seeks to provide capital appreciation with lower volatility Participatein equity markets Provides growth potential Risk similar to that of an equity fund Hedged equity exposure Takes advantageof market inefficiencies Intends to capturesspreads betweencash and derivatives market Debt and money market securities RelativelyLow volatility Possibility of stable returns compared to Equity Equity 20%-40% Cash Future Arbitrage 25%-55% Debt 15%-35% (INVIT/REITS 0% to 10%) Option of <25% Global Equity Gross equityexposure: >65% EquityTaxation
- 5. 5 Equity: Exposure &Hedging MINIMUM No Hedging 0% 40% 1. FUNDAMENTAL FACTOR Based on Market Valuations 2. TECHNICAL SIGNALS Based on Market Momentum 3. Hedging Ratio Determinesthe number of out-of- the-moneyPutoptions the fund will holdto hedge the equityportion MAXIMUM Fully Hedged • Equityexposure limit:20% to 40% (ex of Arbitrage) • Current strategyis to holdEquity constant between35% to 40% while hedgingusingout of the moneyPut options. • The exposure to be hedgedis determinedbya systematicstrategybased on market valuationsand technicals.The strategy has beenback testedand is expectedtoprovidesbetterriskreturn profile thanunhedgedequity. Disclaimer: The strategy / investment approach / framework mentioned herein is currently followed by the scheme and the same may change in future depending on market conditions and other factors.
- 6. 6 Equity Hedging • OTM(Out of the Money) NIFTY Index Putoptions are usedto hedgedequityportion.The numberof PUT options (hedging ratio) is dependentonmarket valuationsand momentum.These options are bought basedon our model,on everyFutures& Optionsexpirydate (Last Thursdayof everymonth). • Illustration(actual numberscould be different) • Assumptions:1. 5% OTM NiftyPUT optionis used to hedge 2. EquityPortfolioReturnis similarto Nifty3. The PUT costs 0.5% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% 19.5% 14.5% 9.5% 4.5% -0.5% -5.5% -5.5% -5.5% -5.5% -5.5% -5.5% Nifty 1M Return (F&O Expiry to Expiry) 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Unhedged Portfolio Return Hedged Portfolio Return Disclaimer: The above graph is just for illustration purpose and based on assumptions. Actual scenario could be different and based on many factors. There is no assurance of any returns/capital protection/capital guarantee to the investors in this scheme or fund.
- 7. 7 When will Hedgesbe Ineffective 1. When portfolio significantlyunderperforms the Index The hedges will protect only to the extent the Index falls. If the portfoliocrasheswhile Index is stable the hedges wouldbe ineffective 2. If there is slow and steady fall in Index If for example the index falls about 5% every monthandwe are using 5% OTMPuts to hedge then on each expiry these puts expire worthless andprovide no protection. The PUTs usually helpin case of sharpcrashes to the extent of the hedged portfolio.We might not be hedged at all in case the market crashes fromfairor inexpensive valuations. <-10% -10% to -5% -5% to 0% 0% to 5% 5% to 10% >10% 5 24 48 64 37 14 0 10 20 30 40 50 60 70 Distributionof Monthly Nifty Returns (Expiry to Expiry Jan-2005 to Dec-2020) Hedgingmight helpin these instances Number of months outof total of 192 wherethereturns havebeen in the bracketmentioned above Back Disclaimer: Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments.
- 8. 8 Limiting Risk ofPermanent Loss of Capital HEDGE HIGHER RISK SEGMENT CONSERVATIVE PORTFOLIO CONSTRUCTION DIVERSIFICATION Focus onvaluations,marginof safety andminimizing downside risks Use a systematic options hedging strategy to hedge the equity portion when market valuations appear stretched Exposure to LongOnly Equity, Debt, REITS/INVITS Back Disclaimer: Margin of Safety in our opinion in difference between Intrinsic Value and Market Price of the businesses. It should not not construed as safety of the return in the above mentioned scheme/Fund.
- 9. 9 Targeting Lower Drawdowns Withlong investment horizons,why focus on lowering drawdowns at all? High Drawdown: Investor questions the investment. Fund manager questions framework and strategy. Bothoftenendup acting unnecessarily, hurting returns LowDrawdown: Canhelp investorinstayingpatient and invested. Canhelp Fund Manager in avoiding unnecessary churn and strategy changes
- 10. 10 Targeting Lower Drawdowns Howdoes DSP Equity Savings Fund TargetLower Drawdowns? Equity Arbitrage Debt/REITS/INVITS Equity Market Valuations Hedging High FullyhedgedwithOTM Put Options Potential to provide accrual income Potential to provide accrual income and likelyto help to compensate for equity volatility Back
- 11. 11 Counter Cyclical Approach Equity MarketValuations Hedging High FullyhedgedwithOTM Put Options Moderate PartiallyHedged Low Not Hedged 1. Conservative when Equity Valuations are High and Aggressive when Equity Valuations are Low Equity fallFrom Peak Equity Exposure (Assumingno benefit from hedging) Rest Incrementalallocation to equity to get to 40% 0% 40% 60% 0% 25% 33% 66% 6.3% 50% 25% 75% 15% 2. Falling share of Equityin a Hybrid Fund as market falls leads to rebalance mechanism where the Fund buys more equity in event of sharp falls 3. Option to add global equity in case of sharp fall in global markets Debt YieldsHigh YieldsLow Moderate DurationPortfolio(3 to 5 Years) Low Duration Portfolio(1 year) Back
- 12. 12 Multi Asset Portfolio Equity Arbitrage Debt/REITS/INVITSlbal Equity Objective:Capital Appreciation Objective: Potential to provide Accrual Income Objective: DEBT can provide stability and accrual income, REITS/INVITS can end up providing higher yieldthan DEBT Global Equity<lobal Equity Geographical Diversification Opportunistic allocation in case valuation and risk-return profile favourable Back
- 13. 13 Focus on AbsoluteReturns 1. Focuson limiting the risk of permanent loss of capital 2. Focuson generatingabsolute return over cycles with good risk/return profile 3. Businesses are evaluated on basis on its ability to generate Inflationbeating returns on a long-term horizon based on conservative assumptions 4. Willingness to underperform benchmarks in sharp bull markets due to focuson risk management 5. Relatively concentratedportfolioof approximately20 stocks Back Disclaimer: There is no assurance of any returns/capital protection/capital guarantee to the investors in above mentioned scheme/Fund.
- 14. 1. FirstObjective:Limit theRisk of PermanentLoss of Capital Diversification Focuson limiting downside risk Conservative portfolio construction Counter Cyclical Allocation 2. SecondObjective:BeatInflation Allocation to Invits/Reits Debt/Arbitragecan provide accrualincome Currency diversificationand opportunisticexposureto global equity 3. Third Objective:BeatBenchmark assumingit’s beating inflation Avoiding large drawdownsand accidents by hedging and countercyclical positioning in both Debt and Equity Increase allocationin Equities by adding global equities when they are available at relative cheaper valuations at favorablerisk-return odds 14 Seeking Returns Higher of Benchmark or Inflation Back
- 15. 15 What is therisk/return profile of DSP ESF? DSP Equity Savings Fund’s risk/return profile is similar to a ModerateHybrid Fund LIQUID / LOW DURATION FUNDS DURATION/ INCOMEFUNDS SMALL &MIDCAP FUNDS/SECTORAL FUNDS Less risk than equityfunds,could earn Greater returns than debt funds RISK MULTICAP FUNDS HYBRIDFUNDS DSP EQUITY SAVINGSFUND EXPECTED RETURN
- 16. 16 Equity: Entry Process Canthe business be held for 10 years? • Itmeans atthispointthereisno reason to believewemighthaveto sell before10 years • Does notmean wewill necessarily continueholdingfor10 years Are the embedded valuations conservative? • Is thestock availableata pricewherewecan makeInflation + approximately 10%even on conservativeexpectations of futuregrowth & profitability Yes Yes Is the downsidelow? • In caseof adversebusinessdevelopmentsisthedownsidelimited? • Wearelookingatlossintheintrinsicvalueof thebusinessnotquoted value which could bevolatile Long Term Orientation, TypicallyNo Allocationto Cyclicals Value Bias Value = IntrinsicValue - Price Absolute Return Approach BUY Since quality companiesare easier to value due to durabilityof their business, predictabilityof cash flows,and lowertail risks theyusuallyform a large part of the portfolio. But the portfolio generallyhasa Value bias and may not have Quality/Growthor Momentum bias. Entry will typicallynot be from 30% of the most expensive stocks in the market (based on our internal quantitative parameters) Yes
- 17. 17 Valuation Approach Source:Internal Low Multiples, Peakof Business Cycle High Multiples, Peak of Business Cycle Low Multiples, Bottomof the Business Cycle High Multiples, and Bottomof the Business Cycle Business Cycle Valuation Multiples Best Ideas. Possibility of bothearnings growth and multiple rerating Multiples look high but should consider normalized earnings. Valuations could still be cheap Exit. Avoid Hold. Track momentumin fundamentals. Valuation multiplesshould be looked at in context of the Business Cycle
- 18. 18 Equity: Exit Process Source:Internal Isa better risk return availableelsewhere? • The best reason to sell Price factoring in overly aggressive assumptions? • Is the stockexpected to deliver<Inflation +approximately10%based on even aggressive assumptionsoffuturegrowth and profitability Or Was the Thesis Wrong? • Has new information or businessdevelopmentsmateriallychanged the initialhypothesis Or More tolerant of over-valuation in exit decisions (to compensate for value bias in entry)
- 19. 19 Performance Scorecard Source: MFIE;Scheme Benchmark – 30% Nifty 500 TRI + 70% CRISIL Liquid Fund Index. Returns are as on Oct 30, 2021 for Regular plan, Growth Option. Inception date – Mar 28,2016. Click here for scheme performance of above Scheme in SEBI prescribed format and of other schemes managed by same Fund Managers. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. It is not possible to investdirectly in an index. POINT-TO-POINT RETURNS Time Period DSP Equity Savings Fund 30% Nifty 500 TRI + 70% CRISIL Liquid Fund Index 1 Year 21.18% 18.56% 3 Year 10.27% 10.69% 5 Year 7.60% 9.58% Since inception 8.83% 10.17%
- 20. 20 Portfolio Positioning Source: Internal.Data as on Oct 31, 2021. The sector(s)/stock(s)/issuer(s) mentioned herein do not constitute any research report/recommendation of the sameand the scheme/ Fund may or may not haveany future position inthesesector(s)/stock(s)/issuer(s). Long Equity, 36.6% Arbitrage, 29.0% Put options *,0.3% InvITs,7.8% Debt, 24.6% Cash,1.8% * Nifty 17300 Put with Nov 2021 expiry with notional exposureof ~35% of AUM
- 21. 21 Disclaimers & ProductLabelling This document is for information purposes only. In this material DSP Investment Managers Private Limited (the AMC) has used information that is publicly available, including information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The statements contained herein may include statements of future expectations and other forward looking statements that are based on prevailing market conditions / various other factors and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. While utmost care has been exercised while preparing this document, the AMC nor any person connected does not warrant the completeness or accuracy ofthe information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate professional advice. The portfolio ofthe scheme is subject to changes within the provisions of the offer documents of the scheme. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. The sector(s)/stock(s)/issuer(s) which are currently part of portfolio do not constitute any research report/ recommendation of the same and scheme/ Fund may or may not have any future position in these sector(s)/ stock(s)/issuer(s). The investment approach / framework/ strategy mentioned herein is currently followed by the scheme(s) and the same may change in future depending on market conditions and other factors. All opinions and data included in this presentation are as on 31 Oct 2021 (unless otherwise mentioned) and are subject to change without notice. There is no assurance of any returns/capital protection/capital guarantee to the investors in this scheme of DSP Mutual Fund. For scheme specific risk factors, load structure, Investment strategy, detailed asset allocation structure and more details, please read the Scheme Information Document and Key Information Memorandum ofrespective scheme available on ISC of AMC and also availableon www.dspim.com. For Index disclaimer click here Large-caps are defined as top 100stocks on market capitalization, mid-caps as 101-250 , small-caps as 251 and above. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Scheme Product Suitability Riskometer DSP Equity Savings Fund Benchmark - 30% Nifty500 TRI + 70% CRISIL Liquid Fund Index DSP EquitySavings Fund (An open ended scheme investingin equity, arbitrageanddebt) This Schemeissuitablefor investorwho are seeking* o Longterm capital growth and income o Investmentin equity and equityrelated securitiesincludingtheuseof equity derivativesstrategiesand arbitrage opportunitieswith balanceexposurein debtand money marketInstruments *Investors should consult their financial advisers ifin doubt about whether the Scheme is suitable for them.
- 22. For Professional Investoruseonly #INVESTFORGOOD