India Sector Trend Fund

Objective

A historical analysis of market performance suggests that the broader indices at any given point in time are driven by a few sectors; each a function of its exclusive set of headwinds and tailwinds. Thus, an investment in the right sector at the right time is a definite means of earning superior returns over the benchmark indices. 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 while the fund management strategy is aligned with identifying and participating 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 (not exceeding 15% of the portfolio) that is backed by in-house fundamental conviction.

Strategy

In short, the strategy will be to avoid Underweight sectors that are at the moment defensive and/or underperforming and be over weight on sectors that are expected to see favourable near term tail winds. The investment strategy 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 under weight/ avoiding sectors that are expected to lag the market. The benchmark for performance evaluation is BSE 30 and universe for investment in BSE 200.

Portfolio Structure

60-70% of the portfolio will be invested in Top-3 sectors of BSE- 30 and the remaining will be invested in bottom up ideas from BSE 200; all sectors participating in India’s growth are represented in BSE 200. The average market cap of companies in BSE 200 is US$4.7 bn. and the median market cap is US$2 bn. Our Universe will mostly be limited to BSE 200. BSE 200 companies consist of front line leaders in their respective industries and are companies that have the best operating levers, financial metrics and governance norms to perform. Among the BSE 200, BSE 30 stocks (Sensex) will likely have a majority of the exposure.