The document provides a performance update from Portfolio Management Services (PMS) dated 15 September 2010. It summarizes the strategy, performance and positioning of the BRICS Growth portfolio over the period. The portfolio has outperformed benchmark indices through conservative stock picking and a buy-and-hold philosophy. The portfolio has increased exposure to large caps and reduced mid-caps, while maintaining adequate liquidity. It continues to deliver absolute returns with low volatility through a focus on quality companies.
1. MULTIPLE -STRATEGY
TREND RATED
AUTOMATIC TRADING SYSTEM
Portfolio Management Services (PMS)
Performance Update
15 September 2010
Vivek Mavani – Vice President and Senior Portfolio Manager
2. BRICS Growth Synopsis
BRICS Growth is a Long only Diversified Equity Product aimed at generating Absolute Returns
The Objective is:
Generate Steady & Consistent returns over medium to long term
Low Volatility
Cautious on 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.
3. Portfolio Update
Since the last update, (August, 2010) the portfolio has been realigned keeping in mind the changed
view from being defensive to being slightly aggressive
Increased the weightage of large caps by increasing the exposure to Reliance Industries and
Large Cap Banks (Axis Bank and ICICI Bank)
During a market correction, mid-caps generally, witness a sharper correction. Therefore, we
reduced our exposure to mid-caps by booking profits in some our holdings which had very sharp
rallies. It is to reduce the portfolio volatility, (at least partly).
Cash levels this month are lower than last month
As we opportunistically deployed the surplus cash to ride on the momentum, and,
as the invested portfolio value has increased, (cash had obviously not)
Credo of sticking to Quality remains and will never be compromised
Can stick to this credo as we see no serious compulsion to deploy funds at higher levels.
Wouldn’t mind sitting it out for a while than take undue risks
Global macroeconomic risks remain and we are cautious of the same as highlighted repeatedly
in the previous updates. However, capitalizing on the opportunity to play the momentum for at
least part (<15%) of the portfolio
6. Compared to Top 20 Mutual Funds
Ranked on 3 month returns
Performance
Rank Scheme Name
1 Mth % 3 Mths % 6 Mths %
1 IDFC Premier Equity Fund - Plan A - Growth 6.03 21.86 29.58
2 Brics Growth 5.29 21.68 31.43
3 Reliance Equity Opportunities Fund - Growth 8.49 20.07 29.58
4 HDFC Equity Fund - Growth 7.10 18.31 26.22
5 Franklin India High Growth Companies Fund - Growth 8.09 17.50 16.35
6 HDFC Long Term Equity Fund - Growth 7.50 17.44 25.26
7 HDFC Growth Fund - Growth 8.15 17.41 26.00
8 Canara Robeco Emerging Equities - Growth 4.22 17.39 27.93
9 Quantum Long-Term Equity Fund - Growth 7.61 17.31 24.14
10 SBI Magnum Global Fund 94 - Growth 6.54 17.08 24.27
11 DSP BlackRock Opportunities Fund - Growth 8.08 17.07 25.10
12 DSP BlackRock Equity Fund - Growth 6.91 16.98 22.42
13 Kotak Emerging Equity Scheme - Growth 5.85 16.62 24.57
14 Morgan Stanley A.C.E Fund - Growth 6.71 16.26 19.77
15 Templeton India Growth Fund - Growth 9.49 16.12 17.83
16 Fortis Future Leaders Fund - Growth 6.28 16.10 28.64
17 Tata Select Equity Fund - Appr 7.65 15.82 17.62
18 JPMorgan India Equity Fund - Growth 7.42 15.63 21.33
19 Franklin India Opportunity Fund - Growth 5.97 15.23 16.80
20 Morgan Stanley Growth Fund - Growth 6.18 15.09 16.85
The comparison includes 250 Diversified Equity Funds across all Fund Houses
7. Compared to Top 20 Mutual Funds
Ranked on 6 month returns
Performance
Rank Scheme Name
1 Mth % 3 Mths % 6 Mths %
1 Brics Growth 5.29 21.68 31.43
2 IDFC Premier Equity Fund - Plan A - Growth 6.03 21.86 29.58
3 Reliance Equity Opportunities Fund - Growth 8.49 20.07 29.58
4 Fortis Future Leaders Fund - Growth 6.28 16.10 28.64
5 Canara Robeco Emerging Equities - Growth 4.22 17.39 27.93
6 HDFC Equity Fund - Growth 7.10 18.31 26.22
7 HDFC Growth Fund - Growth 8.15 17.41 26.00
8 HDFC Long Term Equity Fund - Growth 7.50 17.44 25.26
9 DSP BlackRock Opportunities Fund - Growth 8.08 17.07 25.10
10 Kotak Emerging Equity Scheme - Growth 5.85 16.62 24.57
11 SBI Magnum Global Fund 94 - Growth 6.54 17.08 24.27
12 Quantum Long-Term Equity Fund - Growth 7.61 17.31 24.14
13 Fidelity Equity Fund - Growth 6.87 14.87 23.46
14 DSP BlackRock Equity Fund - Growth 6.91 16.98 22.42
15 ICICI Prudential Fusion Fund - IP - Growth 5.73 14.00 22.31
16 Fidelity India Growth Fund - Growth 7.02 14.65 22.27
17 Escorts Growth Plan - Growth 2.75 12.20 22.10
18 JPMorgan India Equity Fund - Growth 7.42 15.63 21.33
19 Birla Sun Life Long Term Advantage Fund - Growth 6.96 14.79 20.74
20 Franklin India Prima Fund - Growth 5.83 15.06 19.97
The comparison includes 250 Diversified Equity Funds across all Fund Houses
8. BRICS Growth NAV Trend
BRICS Growth has delivered absolute & BRICS Growth NAV v/s Indices (normalised)
consistent returns during both periods: 155
150
Performance has been a result of our :
Stock Picking 145
Low churn in the portfolio, and 140
Conservative attitude (not taking 135
excessive risks) 130
125
Between 1 Oct. Between 25 May
120
Performance 2009 – 25 May 2010 – 15
2010 * Sept.2010 115
Range bound 110
Sharp rally
markets with 105
across the board
volatility 100
BRICS Growth 15.70% 29.04% 95
Nifty -5.44% 21.93% 90
85
Sensex -6.50% 21.72%
1-May-10
1-Apr-10
1-Aug-10
1-Nov-09
1-Feb-10
1-Jul-10
1-Sep-10
1-Dec-09
1-Oct-09
1-Jan-10
1-Mar-10
1-Jun-10
S&P 500 -2.84% 21.47%
CNX Mid-Cap 10.32% 23.62%
BRICS Growth Nifty Sensex
* 25 May 2010, Indices bottomed out, when the S&P 500 CNX Midcap
current rally started.
9. BRICS Growth Outperformance
Our out-performance has been increasing BRICS Growth NAV Outperformance vis-a-vis Indices
over a period of time 40%
Our Strategy has been to : 35%
30%
Buy during panics/declines
25%
Use sharp rallies to partially book profits
20%
Opportunistically ride the momentum
15%
for only a small part of the portfolio
10%
Remain adequately liquid at all times
5%
Adequate liquidity helps :
0%
Protect against volatility
-5%
Provides enough courage and -10%
conviction to buy into panics
1-Apr-2010
1-May-2010
1-Nov-2009
1-Feb-2010
1-Jul-2010
1-Aug-2010
1-Sep-2010
1-Dec-2009
1-Jan-2010
1-Mar-2010
1-Jun-2010
1-Oct-2009
Current cash/liquid balances ~ at 15% of the
Portfolio
Nifty Sensex S&P 500 CNX MidCap
10. Portfolio Breakup
Sectoral Allocation Market Cap Breakup
Cash
Banking & 15%
Oil & Gas
23.59% Finance
23.27%
Small Cap
17%
Media Large Cap
5.93% Branded 53%
Garments &
Infrastructure Retail
4.31% 12.81%
FMCG Mid Cap
14.74% Cash 15%
15.35%
Large Cap. More than Rs 5,000 crores
Mid-Cap. Rs 1,000 - 5,000 crores
Small Cap. Less than Rs 1,000 crores
12. How did we do during periods of Volatility - 10 Biggest falls since October 2009
How much a portfolio falls during a Points Points % Fall -
% Fall - % Fall -
correction / sharp downturn is as Date Fall - Fall - BRICS
Nifty Sensex
important as how much it gains in a Nifty Sensex Growth
bull market
27-Jan-10 -159.65 -3.19% -490.64 -2.92% -2.29%
Protecting capital is often more
important during periods of volatility 03-Nov-09 -147.80 -3.14% -491.34 -3.09% -0.36%
Downside protection equally 19-May-10 -146.55 -2.89% -467.27 -2.77% -0.84%
contributes to superior returns over a
period of time 25-May-10 -137.20 -2.78% -447.07 -2.71% -1.62%
We have managed to fall less than 05-Feb-10 -126.70 -2.61% -434.02 -2.68% -0.47%
the indices during each of the sharp
falls / panics since our inception 27-Oct-09 -124.20 -2.50% -387.10 -2.31% -0.65%
Large liquidity during periods of 21-Jan-10 -127.55 -2.44% -423.35 -2.42% -1.32%
volatility & a low beta portfolio helped.
01-Jun-10 -116.10 -2.28% -372.60 -2.20% -1.24%
Against -- Nifty Sensex 26-Nov-09 -102.60 -2.01% -344.02 -2.00% -0.95%
Beta * 0.4156 0.4133 07-Jun-10 -101.50 -1.98% -336.62 -1.97% -0.99%
*Beta measures the volatility of the 04-Feb-10 -86.50 -1.75% -271.10 -1.64% -0.28%
portfolio relative to the index
13. Market Outlook
Global macro economic risks will continue to weigh on the markets. Will definitely have
repercussions on India over a period of time, if not in the short term
Global liquidity flooding Indian markets has been the primary reason for the current rally. Some
sectors (like banking, Auto’s) have seen a huge rerating
Overall Valuations are definitely not cheap. If the current sharp momentum continues Valuations
could become a concern as they approach a bubble territory
In some sectors/stocks valuations already factor in fairly aggressive growth rates for FY11
and FY12. Corporate performances could potentially disappoint given high expectations
Price corrections from current high levels could be very sharp, if earnings disappoint
However, markets have also been very discriminative against corporates under-performing
expectations. This is very evident in the current rally since May-end 2010 where broad based
participation is lacking, (the type we have seen in the past, 2006, 2008)
Serious concerns will start when the liquidity driven rally takes even the stocks with bad/doubtful
fundamentals to new high’s
Pockets of opportunities still available in those stocks/sectors where growth is steady and
valuations still leave room for upside.
However we continue to remain cautious of the market levels/individual stocks prices and
valuations and would use sharp rallies as profit booking opportunities
14. 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 time
The sectors that we are bullish are and continue to be over weight:
Banking & Financial Services,
Gas Transportation & Distribution
Domestic Consumption oriented sectors including Paints, Branded Garments, Media etc.
15. Happy Investing
Thank You
Vivek Mavani – Vice President & Senior Portfolio Manager
vivek.mavani@bricssecurities.com
BRICS SECURITIES LIMITED
1st Floor, Sadhana House,
570, P. B. Marg,
Behind Mahindra Towers,
Worli, Mumbai – 400 018.
Tel: 91-22-6636 0000.