Deep Value @ Discount Fund

Objective

The Fund seeks to achieve above-average returns with below-average risk. The market’s current focus is on short-term issues, rather than on a long-term structural shift. Today’s valuations allow for exceptional returns along with substantial downside protection. The Fund aims to double investors’ capital in 36 months or less.

Philosophy

  • Focus on absolute returns.
  • Intrinsic value is not a single, precise number; rather, it is a range.
  • Buy at a discount to intrinsic value, conservatively calculated.
  • Look for situations where the market is not only ignoring the future, but also a bit of the present.
  • The combination of both a bargain price at the time of purchase and the value add from retained earnings over the holding period  will contribute to investment returns.
  • Aim to be rational, not merely contrarian.
  • Cheap price in relation to value is often the single biggest catalyst.

Strategy

The fund as the name suggests concentrates on identifying Deep Value buys (within a market cap range of Rs 2000- 10000 million) that arise out of situations such as: pockets of cyclical pessimism towards the industry or the company, valuation mismatch that arise from de-mergers of disparate divisions into companies, compulsions of large institutional investors causing value buying opportunities. While we track the performance of our firms actively, the fund will hold a very passive, concentrated portfolio of 8-10 stocks with virtually no trading.

Portfolio Structure

The Fund will operate on the PMS platform where the investor’s assets will remain either in cash with a bank/liquid fund (pending deployment), or in the form of stock with CDSL. In either case, the assets will be under the investor’s name. The fund would remain open ended, but the expected time frame to realize the full value of the investment is about 36 months. Capital would be returned to the investor either when the portfolio doubles or at the completion of 36 months, whichever is earlier.

 

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