brics pms performance update - 31 december 2010
TRANSCRIPT
MULTIPLE -STRATEGY TREND RATED
AUTOMATIC TRADING SYSTEM
Portfolio Management Services (PMS)
Performance Update
31 December 2010
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 continued into December. Although the Sensex & Nifty lost less than
3% from the peak of first week of November, broader markets (individual stocks) saw prices correct by
10-40%. Banking witnessed the largest price erosion with Bank Nifty correcting by ~11% from the peak
The correction was accompanied by significant drying up of liquidity across the board, but more so in
non-frontline stocks
We were cautious throughout the last few months as highlighted in our previous updates. During the
corrective phase we deployed significant part of the liquid balances by buying on declines in good
quality stocks where we have a high degree of conviction
We increased our exposure to large caps and now it is ~63% of our portfolio weightage.
We added Large Cap Banks (Axis Bank), Technology (Infosys & TCS), Auto (Bajaj Auto) and Capital
Goods Sectors (BHEL)
Notwithstanding the huge underperformance of the Banking sector we continue to maintain our
conviction in Axis Bank
Although, we had reduced our Mid-cap exposure by booking profits, especially where they had a very
sharp run-up, selectively Mid-caps will continue to be an attractive space as individual performances are
likely to shine
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 – 31 December 2010
Inception Date: 1 October, 2009 Portfolio returns are audited and net of fees
(including performance fees) & other expenses
Weekly Monthly Quarterly Half Yearly AnnualSince
Inception
BRICS Growth 0.87% 2.02% 1.68% 18.59% 39.35% 51.20%
NIFTY 2.04% 4.64% 1.73% 15.47% 17.95% 20.68%
SENSEX 2.17% 5.06% 2.19% 16.57% 17.43% 19.69%
S&P CNX 500 2.09% 3.34% 0.32% 11.77% 14.13% 19.95%
S&P CNX MIDCAP 1.82% -0.56% -3.35% 8.93% 19.16% 32.23%
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%
The comparison includes 250 Diversified Equity Funds across all Fund Houses
Ranked on 6 month returns
Compared to Top 20 Mutual Funds as of 31 Dec. 2010
Rank Scheme Name Performance
6 Months % 1 Year %
1 Religare AGILE Fund - Growth 23.82 14.71
2 Templeton India Equity Income Fund - Growth 22.72 24.13
3 Reliance Quant Plus Fund - Ret - Growth 21.09 25.40
4 SBI Magnum Sector Umbrella - Emerging Businesses - Growth 20.74 33.08
5 ICICI Prudential Focused Bluechip Equity Fund - IP I - Growth 18.67 28.06
6 BRICS Growth 18.59 39.35
7 HSBC Unique Opportunities Fund - Growth 18.40 21.22
8 ICICI Prudential Focused Bluechip Equity Fund - Ret - Growth 18.16 27.07
9 Quantum Long-Term Equity Fund - Growth 18.03 28.82
10 HDFC Equity Fund - Growth 17.85 29.22
11 UTI Opportunities Fund - Growth 17.45 19.40
12 IDFC Premier Equity Fund - Plan A - Growth 17.32 32.07
13 HDFC Core & Satellite Fund - Growth 17.29 28.31
14 IDFC Strategic Sector (50-50) Equity Fund - Plan B - Growth 17.24 22.71
15 Shinsei Industry Leaders Fund - Growth 17.10 18.97
16 Sundaram Growth Fund - Growth 16.87 17.59
17 Sundaram India Leadership Fund - Growth 16.79 20.92
18 L&T Growth Fund -Growth 16.71 19.48
19 Reliance Equity Opportunities Fund - Growth 16.58 30.45
20 Sundaram Rural India Fund - Growth 16.40 20.79
The comparison includes 250 Diversified Equity Funds across all Fund Houses
Ranked on 1 year returns
Compared to Top 20 Mutual Funds as of 31 Dec. 2010
Rank Scheme Name Performance
6 Months % 1 Year %
1 DSP BlackRock Micro Cap Fund - Reg - Growth 10.54 43.71
2 BRICS Growth 18.59 39.35
3 Religare Mid N Small Cap Fund - Growth 13.96 34.69
4 SBI Magnum Sector Umbrella - Emerging Businesses - Growth 20.74 33.08
5 Canara Robeco FORCE Fund - Ret - Growth 15.72 32.80
6 Tata Dividend Yield Fund - Growth 13.98 32.36
7 HDFC Mid-Cap Opportunities Fund - Growth 14.33 32.13
8 IDFC Premier Equity Fund - Plan A - Growth 17.32 32.07
9 Kotak Lifestyle Fund - Growth 16.22 31.42
10 Reliance Equity Opportunities Fund - Growth 16.58 30.45
11 Birla Sun Life Dividend Yield Plus - Growth 12.76 29.85
12 DSP BlackRock Small and Midcap Fund - Growth 14.50 29.62
13 HDFC Equity Fund - Growth 17.85 29.22
14 HSBC Small Cap Fund - Growth 14.71 29.20
15 ICICI Prudential Discovery Fund - IP - Growth 13.73 29.08
16 Quantum Long-Term Equity Fund - Growth 18.03 28.82
17 Escorts High Yield Equity Plan - Growth 15.86 28.56
18 Birla Sun Life India GenNext Fund - Growth 15.00 28.49
19 HDFC Capital Builder Fund - Growth 14.97 28.44
20 Canara Robeco Emerging Equities - Growth 11.53 28.32
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 8.86% 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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1-A
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1-J
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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 ─
31 December 2010
Market ScenarioRange bound
Market
Sharp rally across
the board Fall from the Peak
BRICS Growth 15.70% 36.73% -4.42%
Nifty -5.44% 31.32% -2.82%
Sensex -6.50% 31.10% -2.36%
S&P 500 -2.84% 29.86% -4.93%
CNX Mid-Cap 10.32% 31.54% -8.88%
Bank Nifty -0.10% 49.90% -11.13%
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 (~20% exposure to
Banking & Financial Services dragged down our NAV)
BRICS Growth Outperformance Trend
How did we do during periods of Volatility – 12 Biggest Falls between Oct.-’09 – Dec.-’10
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 * 0.4799 0.4793 0.5280
Date
Points
Fall -
Nifty
% Fall -
Nifty
Points
Fall -
Sensex
% Fall -
Sensex
% Fall -
BRICS
Growth
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%
09-Dec-2010 -137.2 -2.32% -454.18 -2.31% -2.18%
01-Jun-2010 -116.10 -2.28% -372.60 -2.20% -1.24%
16-Nov-2010 -132.90 -2.17% -444.55 -2.19% -1.44%
26-Nov-2009 -102.60 -2.01% -344.02 -2.00% -0.95%
12-Nov-2010 -122.60 -1.98% -432.20 -2.10% -1.81%
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
Automobiles 5.16%
Banking & Finance19.79%
Branded Garments &
Retail16.67%
Cash8.86%
FMCG9.50%
Information Technology
12.00%
Infrastructure & Capital
Goods13.06%
Oil & Gas14.96%
Sectoral Allocation
Large Cap62.86%Mid Cap
7.61%
Small Cap20.67%
Cash8.86%
Market Cap Breakup
Low Portfolio Turnover (Buy & Hold at work)
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
tim
es
Portfolio Turnover
Portfolio Turnover
Turnover increased as
we partly booked
profits at higher levels
Re-deployed part of
liquid balances by
buying on declines
Market Outlook
Global macro economic risks will continue to weigh on the markets. Global risks emanate out of sovereign
debt problems in Europe and the slow pace of recovery in USA. Will definitely have repercussions on India
Domestically inflation and ballooning deficits pose serious macro economic risks necessitating tightening
liquidity and higher interest rate cycle going ahead. Political risk, though not serious at this point cannot be
under-estimated as there could be policy freeze due to political deadlock
Excess global liquidity was the primary reason for the sharp rallies across all emerging markets in 2010.
however, liquidity could tighten in 2011 which could have serious implications on the markets
Although Valuations have corrected in the last two months, they are reasonable but not very cheap. At this
stage it seems like a Buy on Declines & Sell on Rallies kind of market
The key concern is, however, in stocks where valuations factor in fairly aggressive growth rate
expectations for FY11-13. Corporate performances could potentially disappoint and price corrections
could be very sharp
Valuations v/s growth favour Mid-caps and bottom up stock picking. Mid-caps could potentially be a
very big opportunity going forward albeit with a fair degree of price volatility
Stocks/Sectors to avoid are the ones that either need to raise fresh capital in the near future or are debt
laden as rising interest rate cycle and tight liquidity could have a serious impact on their performance
Pockets of opportunities are still available in stocks/sectors where growth is steady, are adequately
funded and valuations leave room for upside. Declines/corrections in individual stocks could be used as
buying opportunities
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:
Banking & Financial Services,
Technology (Software Services),
Capital Goods and Infrastructure Construction
Oil and Gas including Gas Transportation & Distribution,
Domestic Consumption themes like 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