brics pms performance update - 31 december 2010

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MULTIPLE -STRATEGY TREND RATED AUTOMATIC TRADING SYSTEM Portfolio Management Services (PMS) Performance Update 31 December 2010 Vivek Mavani Vice President and Senior Portfolio Manager

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Page 1: Brics PMS Performance Update - 31 December 2010

MULTIPLE -STRATEGY TREND RATED

AUTOMATIC TRADING SYSTEM

Portfolio Management Services (PMS)

Performance Update

31 December 2010

Vivek Mavani – Vice President and Senior Portfolio Manager

Page 2: Brics PMS Performance Update - 31 December 2010

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.

Page 3: Brics PMS Performance Update - 31 December 2010

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

Page 4: Brics PMS Performance Update - 31 December 2010

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%

Page 5: Brics PMS Performance Update - 31 December 2010

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%

Page 6: Brics PMS Performance Update - 31 December 2010

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

Page 7: Brics PMS Performance Update - 31 December 2010

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

Page 8: Brics PMS Performance Update - 31 December 2010

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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BRICS Growth Nifty Sensex

S&P 500 CNX Midcap

BRICS Growth NAV v/s Indices (normalised)

Page 9: Brics PMS Performance Update - 31 December 2010

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

Page 10: Brics PMS Performance Update - 31 December 2010

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%

Page 11: Brics PMS Performance Update - 31 December 2010

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

Page 12: Brics PMS Performance Update - 31 December 2010

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

Page 13: Brics PMS Performance Update - 31 December 2010

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

Page 14: Brics PMS Performance Update - 31 December 2010

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.

Page 15: Brics PMS Performance Update - 31 December 2010

Thank You

Vivek Mavani – Vice President & Senior Portfolio Manager

[email protected]

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