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Sanctum PMS Performance Quarterly

Jan 13, 2020

The process of intelligently building a portfolio consists of buying the best investments, making room for them by selling lesser ones, and staying clear of the worst.” – Howard Marks

Summary

The Nifty 50 delivered a 12.0% return in 2019, while the NSE 100 and NSE 200 delivered 10.4% and 8.7% respectively. Meanwhile, the Midcap 100 delivered a -4.3% return and Smallcap 100 delivered a -9.5% return. The divergence witnessed between large and mid/small first witnessed in the summer of 2018 persisted meaningfully into 2019.

PMS Performance – Olympians 3 Year CAGR is #1 Across PMS Large Cap and Multi Cap Funds

Our large PMS Olympians delivered +23.9% in 2019 while our multi cap fund Titans is up 20.1% YTD. Both funds made it to the list of 14 PMS funds that delivered 20% plus returns in 2019. Olympians 3 year CAGR ranks it as the number 1 ranked PMS across 3 year period. Titans is ranked number 1 over 3 years versus multi cap mutual funds in our universe.

Olympians 3 year CAGR of 20% and Titans 3 year CAGR of 17% in a very difficult environment meant we have delivered on our promises to clients of 16 – 18% CAGR on equity portfolios over sustained periods, across cycles. In a tough market, we are glad to have been able to meet our commitments to clients.

Both funds outperformed their benchmarks by 13.5% and 11.4% respectively.

Investment Outlook

Our investment committee has determined that the recent rise in geopolitical tensions between the US and Iran moves us to a neutral weighting on equity, and an overweight position in gold.

We believe the rise in geopolitical tensions between the US and Iran following the killing of Iranian general Soleimani in a drone strike on Friday could impact oil prices. As we know, the rise in oil prices tends to have significant impact on India.

The current fiscal situation in India leaves limited scope for any government intervention in the form of cutting excise duty. With elevated equity valuations, especially for quality stocks, any negative global equity market sentiment (risk-off environment) could have a much larger impact on Indian equities. Having said that, there are calls for de-escalation of the situation which appears to be the direction things are headed and we are adopting a wait and see approach.

However, since risks clearly have increased, we add to gold given that it is considered a safe haven and provides a hedge against a rise in geopolitical tensions. Gold has also broken above a key resistance of USD 1,525/oz after being range bound for some time.

PMS Quarterly Performance – Olympians Large Cap

Olympians Large Cap is Up +23.9% in 2019 Versus 10.4% for the Benchmark…

Olympians Large Cap is Up +23.9% in 2019 Versus 10.4% for the Benchmark…

1 Crore Invested in Olympians in 2012 Has More than Tripled to 3.6 Cr…

1 Crore Invested in Olympians in 2012 Has More than Tripled to 3.6 Cr

Olympians Has Delivered Consistent 3%+ Returns in 23 of 32 Quarters Since 2012…
… With Only One Double Digit Negative Quarter

Olympians

Olympians Has Delivered at Least Double Digit Returns Every Year Since Inception, Except FY 16

Olympians

Olympians Ranks #1 1-year, #2 3-Year #1 5-Year vs Large Cap Mutual Fund Universe

Olympians

Olympians Sports the Highest Sharpe Ratio and Highest CAGR Return Vs Large MF Peer Group

Olympians

Olympians – Consistency in Outperformance and Loss Avoidance

Olympians has outperformed the Nifty 50 over almost all periods, by roughly 6.2% a year, and accelerated its outperformance, delivering 23.9% this year, versus 10.4% for the NSE100, outperforming the index by 12.4%

PMS Quarterly Performance – Titans Multi Cap Portfolio

Despite Mid Caps Being Down ~4% in 2019 and Small Caps Down ~10%…

Olympians

Titans Multi Cap is Up +20.1% in 2019 Versus 8.7% for the Benchmark NSE 200…
…Outperforming the Benchmark NSE 200 by 11.4%

Olympians

Titans is Outperforming the NSE 200 and Nifty 50 by 4.1% Annually Since inception…

Olympians

1 Crore invested in Titans in 2011 Has Grown to 3 Cr

Olympians

Titans Has Delivered 3%+ Returns in 20/32 Quarters with No Double Digit Down Quarter

Olympians

Titans Vs Multi Cap Funds – Titans is #5 on 3 Month, #1 1 year, #1 on 3 Year, and #4 on 5 Year

Olympians

Titans Sports a Higher Return than the Peer Multi Cap Universe and Lower Std Deviation

Olympians

Titans Cap Strategy to Consistently Reduce Small and Mid Cap Exposure in Has Paid Dividends

Olympians

Titans – despite being 20% invested in mid caps and 5% in small caps – has outperformed the Nifty 50 by 4.3% since inception, and also accelerated its outperformance, delivering 20.1% this year, versus 8.7% for the NSE 200, outperforming by 11.4%. Highlighting the consistency of performance and capital preservation, the worst loss year is -8.4% for Titans in FY16 and -1.6% for Olympians in FY16.

Investment Commentary

Equities

We believe the rise in geopolitical tensions between the US and Iran following the killing of Iranian general Soleimani in a drone strike on Friday can drive oil prices higher. Rising oil prices can adversely impact the fiscal situation in India and thus will leave limited headroom for the government to take significant measures to stimulate the economy. While equities can remain under pressure in the near term, bottom up stock picking will be key to generate alpha going forward.

Earnings Growth Matters More than GDP Growth

We’re ultimately in the business of wealth enhancement and earnings growth, not GDP growth. Even in the gloomy macro scenario, there are ample companies reporting strong growth. Looking ahead, we continue to believe well managed portfolios will deliver earnings growth and returns in excess of the Nifty 50.

Fixed Income

Strategy

Consumer price inflation in December is expected to be above the upper end of the RBI’s 6.0% target. Food inflation is expected to touch double digits on the back of the domestic supply bottlenecks. With Middle East tensions driving up oil and gold prices, the outlook on the inflation front is bleak. The RBI will likely keep policy rates on hold at its next monetary policy meeting. Core inflation is likely to remain weak due to slowing domestic demand.

The long end of the curve recently has been supported by three tranches of open market purchases by RBI. Also, with advance estimates for FY20 pointing to a mere 7.5% nominal GDP growth, the fiscal calculations of the government look challenged. Along with falling revenues, this will add more pressure on the long end of the curve on fears of increased borrowings. We prefer a diversified portfolio of short to medium duration bonds, corporate bonds, and limited exposure to credit.

Quarterly Market Performance Data

Olympians

One Key Index to Add to Portfolios Would be the Nasdaq Composite.The Nasdaq Comp Has Consistently Edged the Nifty 50’s Returns and Is a Top Performer

Olympians

Olympians

Private Banks and Real Estate have been the best performing sectors over last one year..
…while, media companies and PSU banks companies have been laggards…

Olympians

Shanghai Remains the Top Performing Index over last one year…

Olympians

Most of the commodities delivered healthy returns in 2019

Olympians

Gold India and Gold U.S. jumped 24.6% and 18.8% Respectively …

Olympians

Most of the agricultural commodities delivered dismal returns in 2019

Olympians

Technical Outlook

Last week markets witnessed volatility on back of Middle East tensions. But after hitting a low in mid-week, equity markets saw smart bounce back in later part to hit new all-time high of 12,311. The Nifty50 finally settled at 12,257 up 0.25% for the week. Broader market indices; BSE Midcap was up by 0.29% and Smallcap outperformed the benchmark with a gain of 1.13% for the week. For the week Nifty has formed bearish hanging candle while on daily chart it has formed doji pattern which indicates indecisiveness at all-time high levels. Thus, for rally to continue in the market; Nifty needs to cross and sustain above 12,300 on tradable basis for rally towards 12,500-12,600 levels. On the downside immediate support is seen at 12,132 breaking below which it is likely to fill Thursday rising gap area till 12,045. In Nifty January monthly expiry options, maximum open interest for Put is seen at strike price 12,000 followed by 11500; while for Call maximum open interest is seen at 12,500 followed by 12,400. Supports for Nifty are shifting higher and options distribution data is suggesting a range of 12,000 and 12,500. India VIX had seen spike from all-time low of 10.52 to 15.64. It has cooled off a bit and closed at 14.08, but still up by 10.87% for the week. But volatility is likely to persist in the near term with markets at all-time highs and Budget at early next month.

Olympians

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