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BRICS PMS Performance Update - 28 February 2011
1. MULTIPLE -STRATEGY
TREND RATED
AUTOMATIC TRADING SYSTEM
Portfolio Management Services (PMS)
Performance Update
28 February 2011
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 :
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.
3. 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
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%
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
4. 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
7. Compared to Top 20 Mutual Funds as of 28 Feb. 2011
Ranked on 1 year returns
Performance
Rank Scheme Name
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
The comparison includes 250 Diversified Equity Funds across all Fund Houses
8. BRICS Growth NAV Trend
Performance has been a result of our: BRICS Growth NAV v/s Indices (normalised)
Stock Picking
160
Low churn in the portfolio, and
155
Conservative attitude (not taking
150
excessive risks)
145
140
Our Strategy has been to :
135
Buy during panics/declines
130
Use sharp rallies to partially book
125
profits
Opportunistically ride the momentum 120
for a part of the portfolio (<15%) 115
Remain adequately liquid at all times 110
105
Adequate liquidity helps : 100
Protect against volatility 95
Provides enough courage and 90
conviction to buy into panics 85
1-Oct-09
1-Oct-10
1-Jan-10
1-Mar-10
1-Jun-10
1-Jan-11
1-May-10
1-Apr-10
1-Aug-10
1-Nov-09
1-Feb-10
1-Jul-10
1-Sep-10
1-Nov-10
1-Feb-11
1-Dec-09
1-Dec-10
Current cash/liquid balances ~ at 19.12%
of the Portfolio BRICS Growth Nifty Sensex
S&P 500 CNX Midcap
9. BRICS Growth Outperformance Trend
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)
1 October 2009 ─ 25 May 2010 ─ 5 November 2010 ─
Date
25 May 2010 5 November 2010 28 February 2011
Range bound Sharp rally across
Market Scenario Fall from the Peak
Market the board
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%
10. How did we do during periods of Volatility – 12 Biggest Falls between Oct.-’09 – Jan.-’11
How much a portfolio falls during a Points Points % Fall -
correction / sharp downturn is as % Fall - % Fall -
Date Fall - Fall - BRICS
important as how much it gains in a Nifty Sensex
Nifty Sensex Growth
bull market
24-Feb-2011 -174.65 -3.21% -545.92 -3.00% -2.01%
Protecting capital is often more
27-Jan-2010 -159.65 -3.19% -490.64 -2.92% -2.29%
important during periods of volatility
03-Nov-2009 -147.80 -3.14% -491.34 -3.09% -0.36%
Downside protection equally
contributes to superior returns over a 19-May-2010 -146.55 -2.89% -467.27 -2.77% -0.84%
period of time
25-May-2010 -137.20 -2.78% -447.07 -2.71% -1.62%
We have managed to fall less than
the indices during each of the sharp 05-Feb-2010 -126.70 -2.61% -434.02 -2.68% -0.47%
falls / panics since our inception
27-Oct-2009 -124.20 -2.50% -387.10 -2.31% -0.65%
Large liquidity during periods of
volatility & a low beta portfolio helped. 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%
CNX
Against Nifty Sensex 07-Jan-2011 -143.65 -2.38% -492.93 -2.44% -1.48%
Midcap
Beta * 0.5150 0.5158 0.5147 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%
*Beta measures the volatility of the
portfolio relative to the index
11. Portfolio Breakup
Market Cap Breakup Sectoral Allocation
Oil & Gas
Cash 11.39% Automobiles
19.12% 6.15%
Infrastructure
& Capital Banking &
Goods Finance
17.27% 6.70%
Large Cap
49.40% Branded
Garments &
Small Cap Information Retail
21.61% Technology 13.82%
12.54%
FMCG Cash 19.12%
Mid Cap 13.01%
9.87%
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. Low Portfolio Turnover (Buy & Hold at work)
Portfolio Turnover Re-deployed part of
1.00 liquid balances by
buying on declines
0.90
Turnover increased as
0.80 we partly booked
profits at higher levels
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
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
13. 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
14. 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
15. 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.
16. 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.