Sector Trend Fund

Objective

 

Our objective is to build a Long Term portfolio of large cap stocks that will seek to generate superior risk adjusted return relative to the benchmark (SENSEX). The underlying driver of this style is to align with sectors and companies that are in the favourable end of the business cycle and underweighting sectors facing industry head winds. The portfolio will largely (>85%) consist of companies within the blue chip universe of BSE200.

 

Investment Approach

 

The investment approach will be to manage differential sector exposure levels to constituents of BSE 200, relative to the Sensex. Alpha will be generated by maintaining an overweight stance on sectors expected to lead the market   and by going underweight/ avoiding sectors that are expected to lag the market.
 

Methodology: 

 

Research shows that no two sectors lead the market performance in consecutive years.  Meaning, at different points in time, different sectors drive the markets.  As India’s economy grows, certain sectors will enjoy growth rates faster than the others due to their inherent strengths, industry cycles and other macro-economic factors.  Portfolio weights will be decided on the basis of two parameters (a) Current Economic Indicators and (b) Company Fundamentals.
 

Sector weights will be determined on the basis of companies most expected to benefit from the current economic indicators (for instance, interest rates, foreign exchange movements, global economic health and others) business cycles.   The investment approach is to identify and participate in growth as defined by (a) visibility of medium to long term earnings, (b) strong balance sheet metrics, (c) competitive MOAT and, (d) how the risk/reward is positioned at existing valuations. The fund manager at any given point in time reserves the flexibility to participate in an opportunity outside of BSE200 that is backed by in-house fundamental conviction.
 

Investment Risk
 

The Portfolio will comprise of approximately 20-25 stocks. Exposure per company will range between 2-10%. Typically, we will underweight/overweight a sector to the extent of 25%-200% of its weight in the Sensex. In any case, no sector will constitute more than 40% of the portfolio. The average market capitalization of the portfolio will be more than the median market capitalization of BSE 200. While the portfolio focuses primarily on a buy and hold approach, we will balance the same with a rational approach to selling when fundamentals have deteriorated or valuations become too demanding even in the face of reasonable growth prospects in the long run. Derivatives will typically not be used except on rare occasions as a hedge, but never for leverage. Risks include general market risks, sector selection risk and valuation downgrade risks.
 

Portfolio Structure 

The portfolio is likely to have around 20 – 25 stocks in the PMS platform. The investor's assets will always remain in the investor's name with a SEBI registered custodian. While tracking and monitoring of investments will be active, there’s likely to be low turnover in the fund.

Benchmark: S&P BSE Sensex