brics pms performance update - 28 february 2011
DESCRIPTION
Monthly Update of the funds I manage at BRICS SecuritiesTRANSCRIPT
MULTIPLE -STRATEGY TREND RATED
AUTOMATIC TRADING SYSTEM
Portfolio Management Services (PMS)
Performance Update
28 February 2011
Vivek 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
The corrective phase of November-December 2010 continued into January and February 2011. If the fall
in January was ferocious, February was exceptionally volatile. While Sensex & Nifty lost ~13% during
January-February 2011, individual stocks lost anywhere between 20-50%
Excess global liquidity drove the markets in 2009 and 2010 that came into the Indian markets (via the
FII’s), saw sharp withdrawals. FII’s were significant sellers across the board. On the other hand, the buying
interest on the domestic investors side (both Institutional and non-institutional) was very limited, thus
driving a sharp correction
Although the sharp erosion in stock prices makes it look like a bear market, the fall so far is a correction
and not the beginning of a bear market, not as yet
The accompanying table shows the correction of various indices YTD 2011, as well as their correction from
the peak levels achieved in November 2010
Limiting the downside in the portfolio in such a scenario is always a huge challenge. We have managed to
limit the downside to a very large extent
Index Fall from Peak Fall YTD 2011 Index Fall from Peak Fall YTD 2011
Nifty -15.51% -13.06% Sensex -15.15% -13.31%
Bank Nifty -21.35% -11.50% BSE Auto -20.77% -19.37%
S&P 500 -18.30% -14.04% BSE Capital Goods -25.76% -19.56%
CNX Mid Cap -24.66% -16.79% BSE FMCG -9.51% -6.83%
CNX IT -11.66% -11.01% BSE Metals -14.54% -12.77%
CNX Realty -50.54% -30.81% BSE Oil & Gas -15.41% -10.77%
Portfolio Update and Outlook (Cont’d)
Dilemma during the corrective phase in the markets:
Sell the portfolio and stay liquid and attempt to re-enter at lower levels
Stay put holding the portfolio and see a temporary erosion in value
We did both selectively
During the month:
Starting the month with ~30% cash levels, we selectively started deploying the funds in February
2011, on declines. The significant cash balances helped us limit the large downsides as well as
helped us to bottom fishing at lower levels
We continue to stay put in stocks/sectors where we continue to have a high degree of conviction,
namely Technology sector (Infosys & TCS), Auto (Bajaj Auto) and Capital Goods Sectors (BHEL).
Although they have also corrected sharply, we would stay invested
Selectively mid-caps continue to be an attractive space as individual performances are likely to shine
in the medium-long term. We added marginally to our mid-cap holdings where risk return scenario from the
medium terms is favourable
Markets in 2011 are more likely to test Conviction & Patience. Stock picking is likely to be the key in
generating superior returns
However, Credo of Sticking to Quality will always remain and will never be compromised
Absolute Performance – 28 February 2011
Inception Date: 1 October, 2009 Portfolio returns are audited and after deducting
fees (including performance fees) & other expenses
Weekly Monthly Quarterly Half Yearly AnnualSince
Inception
BRICS Growth -2.20% -2.78% -8.21% -6.73% 24.04% 33.10%
NIFTY -3.36% -3.25% -7.28% -1.39% 8.35% 4.92%
SENSEX -3.33% -3.11% -6.86% -0.97% 8.48% 4.01%
S&P CNX 500 -3.54% -4.07% -9.20% -6.67% 2.90% 3.11%
S&P CNX MIDCAP -4.96% -6.48% -15.19% -15.85% 2.83% 10.03%
Performance ahead / at least keeping pace with Indices
Month BRICS Growth Nifty Sensex S&P CNX 500 CNX Mid Cap
Oct-09 -0.67% -7.31% -7.23% -6.46% -1.77%
Nov-09 2.79% 6.81% 6.48% 7.59% 8.65%
Dec-09 6.27% 3.35% 3.18% 4.43% 3.97%
Jan-10 -1.84% -6.13% -6.34% -4.00% -3.11%
Feb-10 0.75% 0.82% 0.44% -0.69% -0.48%
Mar-10 6.24% 6.64% 6.68% 4.50% 7.50%
Apr-10 3.77% 0.55% 0.18% 1.27% 4.62%
May-10 1.86% -3.63% -3.50% -3.24% -3.79%
Jun-10 5.81% 4.45% 3.83% 4.59% 4.83%
Jul-10 3.84% 1.04% 1.56% 1.23% 3.50%
Aug-10 7.25% 0.65% 0.58% 1.39% 3.14%
Sep-10 4.13% 11.35% 11.30% 8.06% 4.88%
Oct-10 4.03% 0.44% 0.38% 0.95% 1.68%
Nov-10 -4.26% -2.58% -2.55% -3.85% -4.84%
Dec-10 2.02% 4.64% 5.06% 3.34% -0.56%
Jan-11 -9.47% -10.25% -10.64% -10.45% -10.55%
Feb-11 -2.78% -3.14% -2.75% -4.01% -6.97%
The comparison includes 250 Diversified Equity Funds across all Fund Houses
Ranked on 1 year returns
Compared to Top 20 Mutual Funds as of 28 Feb. 2011
Rank Scheme Name Performance
6 Months % 1 Year %
1 BRICS Growth -6.73 24.04
2 Canara Robeco FORCE Fund - Ret - Growth -7.65 21.23
3 Escorts High Yield Equity Plan - Growth -4.51 20.71
4 Quantum Long-Term Equity Fund - Growth -2.94 17.25
5 HDFC Equity Fund - Growth -4.74 16.87
6 ICICI Prudential Focused Bluechip Equity Fund - IP I - Growth 0.32 16.83
7 Canara Robeco Emerging Equities - Growth -10.25 16.33
8 Fidelity Equity Fund - Growth -3.42 16.20
9 ICICI Prudential Focused Bluechip Equity Fund - Ret - Growth -0.13 15.93
10 HDFC Growth Fund - Growth -5.48 15.79
11 Fidelity India Growth Fund - Growth -2.55 15.42
12 Kotak Lifestyle Fund - Growth -9.78 15.24
13 Reliance Equity Opportunities Fund - Growth -8.86 15.14
14 Reliance Quant Plus Fund - Ret - Growth 1.58 15.13
15 Templeton India Equity Income Fund - Growth 2.37 15.01
16 SBI Magnum Sector Umbrella - Emerging Businesses - Growth -9.84 14.94
17 Canara Robeco Multicap Fund - Growth -6.21 14.82
18 ING Dividend Yield Fund - Growth -8.02 14.75
19 HDFC Capital Builder Fund - Growth -4.72 14.49
20 Tata Dividend Yield Fund - Growth -4.83 14.44
Performance has been a result of our:
Stock Picking
Low churn in the portfolio, and
Conservative attitude (not taking
excessive risks)
Our Strategy has been to :
Buy during panics/declines
Use sharp rallies to partially book
profits
Opportunistically ride the momentum
for a part of the portfolio (<15%)
Remain adequately liquid at all times
Adequate liquidity helps :
Protect against volatility
Provides enough courage and
conviction to buy into panics
Current cash/liquid balances ~ at 19.12%
of the Portfolio
BRICS Growth NAV Trend
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
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BRICS Growth Nifty Sensex
S&P 500 CNX Midcap
BRICS Growth NAV v/s Indices (normalised)
Date1 October 2009 ─
25 May 2010
25 May 2010 ─
5 November 2010
5 November 2010 ─
28 February 2011
Market ScenarioRange bound
Market
Sharp rally across
the board Fall from the Peak
BRICS Growth 15.70% 36.73% -15.87%
Nifty -5.44% 31.32% -15.51%
Sensex -6.50% 31.10% -15.15%
S&P 500 -2.84% 29.86% -18.28%
CNX Mid-Cap 10.32% 31.54% -24.18%
Bank Nifty -0.10% 49.90% -21.35%
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 in line with the Indices (in spite of having
several high beta stocks in the portfolio, banking, mid-caps etc.), large cash balances
helped limit the downside)
BRICS Growth Outperformance Trend
How did we do during periods of Volatility – 12 Biggest Falls between Oct.-’09 – Jan.-’11
How much a portfolio falls during a
correction / sharp downturn is as
important as how much it gains in a
bull market
Protecting capital is often more
important during periods of volatility
Downside protection equally
contributes to superior returns over a
period of time
We have managed to fall less than
the indices during each of the sharp
falls / panics since our inception
Large liquidity during periods of
volatility & a low beta portfolio helped.
*Beta measures the volatility of the
portfolio relative to the index
Against Nifty SensexCNX
Midcap
Beta * 0.5150 0.5158 0.5147
Date
Points
Fall -
Nifty
% Fall -
Nifty
Points
Fall -
Sensex
% Fall -
Sensex
% Fall -
BRICS
Growth
24-Feb-2011 -174.65 -3.21% -545.92 -3.00% -2.01%
27-Jan-2010 -159.65 -3.19% -490.64 -2.92% -2.29%
03-Nov-2009 -147.80 -3.14% -491.34 -3.09% -0.36%
19-May-2010 -146.55 -2.89% -467.27 -2.77% -0.84%
25-May-2010 -137.20 -2.78% -447.07 -2.71% -1.62%
05-Feb-2010 -126.70 -2.61% -434.02 -2.68% -0.47%
27-Oct-2009 -124.20 -2.50% -387.10 -2.31% -0.65%
21-Jan-2010 -127.55 -2.44% -423.35 -2.42% -1.32%
10-Jan-2011 -141.75 -2.40% -467.69 -2.38% -1.92%
07-Jan-2011 -143.65 -2.38% -492.93 -2.44% -1.48%
04-Feb-2011 -131.00 -2.37% -441.16 -2.39% -1.18%
09-Dec-2010 -137.20 -2.32% -454.12 -2.31% -2.18%
Portfolio Breakup
Large Cap. More than Rs 5,000 crores
Mid-Cap. Rs 1,000 - 5,000 crores
Small Cap. Less than Rs 1,000 crores
Large Cap49.40%
Mid Cap9.87%
Small Cap21.61%
Cash19.12%
Market Cap Breakup
Automobiles 6.15%
Banking & Finance 6.70%
Branded Garments &
Retail 13.82%
Cash 19.12%FMCG 13.01%
Information Technology
12.54%
Infrastructure & Capital Goods 17.27%
Oil & Gas 11.39%
Sectoral Allocation
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
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 Dec-10 Jan-11 Feb-11
Portfolio Turnover
Portfolio Turnover
Turnover increased as
we partly booked
profits at higher levels
Turnover increased as
we partly booked
profits at higher levels
Re-deployed part of
liquid balances by
buying on declines
Low Portfolio Turnover (Buy & Hold at work)
Market Outlook
Global macro economic risks and higher commodity prices will continue to weigh on the markets. Will
definitely have repercussions on India
Concerns on macro economic front, (Inflation on back of high commodity prices) threaten to slowdown the
“India Growth Story.” The Union Budget of 2011-12 seeks to address some of the growth concerns
Persistent high Inflation necessitates tightening liquidity and higher interest rate cycle. We feel that there is
still some way to go before the interest rate cycle peaks out this year
Excess global liquidity was the primary reason for the sharp rallies across all emerging markets in 2009 and
2010. However, we are already seeing the impact of marginal withdrawal of liquidity as FII’s turned sellers
in January-February 2011
Although Valuations have corrected significantly in the last four months, they are now beginning to look
reasonable and cheap when seen in light of growth outlook going forward
As long as earnings don’t disappoint going forward, its going to be a market of buying opportunities on
declines. However, one would have to be careful about earnings slowing down due to:
Increasing interest rates and tight liquidity, making capital raising both difficult and expensive
Higher commodity prices across the board, pressure already beginning to be felt
Little flexibility increases the end product prices, thus putting pressure on margins
If any the above three factors play out, earnings estimates for FY12 could be revised down especially for
sectors/stocks that are sensitive to interest rates and commodities cycle
Market Outlook (cont’d)
The key Investment Theme in 2011
Focus on stocks/sectors where growth in sales and earnings is not sensitive to:
Interest rates (both for themselves as well as their end customers)
They have reasonable the pricing power to pass on higher costs as a result of higher commodity
prices, and thus protect margins
Valuations v/s growth favour bottom up stock picking across the spectrum (large and mid-cap), rather than
top-down approach as individual performances could have a wide variance among the peer group.
Stocks/Sectors to avoid are those where growth is dependent on fresh issue of capital (both debt and
equity) as tight liquidity would make raising capital both difficult and expensive having serious implications
on growth
Pockets of opportunities are where growth is steady, are adequately funded and valuations leave room for
upside
It is quite possible, that in 2011 will see indices in a broad range but individual stocks could give excellent
returns. Stock picking will be the key
It is a good time to build a high quality long term portfolio by Buying on Declines
However, Markets in 2011 are likely to Test Conviction & Patience as returns may not come fast and
easy
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),
Capital Goods and Infrastructure Construction
Oil and Gas including Gas Transportation & Distribution,
Domestic Consumption themes like Consumer Goods, Paints, Branded Garments, etc.
Thank You
Vivek Mavani – Vice President & Senior Portfolio Manager
BRICS SECURITIES LIMITED
1st Floor, Sadhana House,
570, P. B. Marg,
Behind Mahindra Towers,
Worli, Mumbai – 400 018.
Tel: 91-22-6636 0000.
Happy Investing