Monthly Communiqué August 2014

Transcription

1 Monthly Communiqué August 2014 Dear Investors and my dear advisor friends, July, August, September and October typically tend to mark the months which for our industry may be called as conference season. These conferences are ones where mutual fund industry professionals, distributors and advisors alike get together to discuss and debate on issues. Issues range from across the industry's operations like fund performance, products, service et al. I was particularly intrigued by one question that was asked by an advisor friend of mine to a panel of experts discussing some trends in the mutual fund industry. He submitted to the panel that investors find it difficult to buy mutual fund schemes because they have complicated names like Dynamic Plan, MultiCap Fund, FlexiCap Fund, Balanced Advantage Fund or in case of Motilal Oswal Mutual Fund the Focused series of funds with names like MOSt Focused 25, MOSt Focused MidCap 30 and MOSt Focused MultiCap 35. Our PMS schemes where you might have invested go with the names of Value Strategy and Next Trillion Dollar Opportunity Strategy. It goes without saying that such names like Next Trillion Dollar Opportunity Strategy are not likely to be understood by an investor. This is because the name describes what the portfolio is aimed at rather than describing what benefit it provides to investors or where it fits in an investor's mutual fund investment portfolio. Next Trillion Dollar Opportunity Strategy intends to communicate that this fund is aimed at capitalizing from India's GDP growth. We are approximately 2 trillion USD or 120 lac crores economy now and as we add another trillion potentially in the next 5 years (Source: MOSL Research), we will see a lot of mid market capitalization companies emerging as leaders in their chosen areas. The strategy aims to create wealth for you by identifying and investing in such opportunities. This is much like the practice in pharmaceutical business where the names describe the drug rather than telling the patient what the drug will do. For example, some surfing on the net tells me that common drugs used to cure typhoid are Ciprofloxacin, Erythromycin, Levofloxacin, Norfloxacin, Ofloxacin etc. Now the trade names of these drugs marketed by pharmaceutical companies are all such that they tell the Doctor what drug is contained in the medicine e.g. Actiflox or Levacloz or Bactoquin etc. I did not find any name like typhoid-buster or typhoid-king or what the MF industry could call typhoid-cure-plan! Why is that? Why can't they have names that are easily understood by the end consumer? That's because one particular drug can be used to cure multiple ailments which may all emanate from bacterial infections. All the above drugs are used to cure bacterial infections and typhoid is one of them. Combinations of drugs may be used to cure different types of ailments and hence naming a drug something like typhoid-buster would result in limiting its usage and conveying a faulty impression. More importantly, the products we are talking about here are prescription based on not over- the- counter or OTC as is widely understood. They need to be consumed under advice from a Medical Doctor. Well yes, clearly there are OTC drugs with more popular names that could be given to you by a doctor and you could all the same buy it from the drug store by common knowledge the kind of stuff used to cure headaches. We all know we could buy paracetamol sold under any of the familiar brand names. But that works when it's a common headache you are looking to cure and not typhoid! Next Trillion Dollar Opportunity Strategy is suitable for long term wealth creation over a period of say 5 years and considering that it invests only in small and mid market capitalization stocks, it's return and risk profile is higher than that of Value Strategy which invests only in large or midsized quality companies. Now, there are various purposes in your life goals for which you might want to create wealth over Our Investment philosophy - BUY RIGHT : SIT TIGHT (Continued overleaf) Buy Right Quality : Quality of business and management Growth : Growth in earnings and sustained RoE Longevity : Longevity of the competitive advantage /economic moat of the business Price : Buying a good business for a fair price rather than buying a fair business for a good price. Sit Tight Buy and Hold: We are strictly buy and hold investors and believe that picking the right business needs skill and holding onto these business to enable our investors to benefit from the entire growth cycle, needs even more skill. Focus: Our portfolios are high conviction portfolios with 20 to 25 stocks being our ideal number. We believe in adequate diversification but over-diversification results in diluting returns for our investors and adding market risk.

2 the next 5 years this could range from a large real estate purchase to purchasing some other asset or just to ensure some surplus monies are to good use. If hypothetically, we were to call this fund Asset Growth Plan, it doesn't mean the fund is not good for a real estate purchase corpus to be accumulated over next 5 years. This entire thought process opened a pandora's box in my mind. Do investors treat their investment and finance related problems like a common headache and therefore are they looking to merely buy something like a popularly branded paracetamol? Are we in the investment management industry in a business where we are providing over-the-counter products or are mutual funds meant to be prescription products? What do you think about this? Do write to me at aashishps@motilaloswal.com because while I may have my opinion and experiences, it will be nice to know what you think about this. So coming back to my friend's question and my answer to him. My opinion and my company's perspective on this is that a mutual fund product is like a generic drug. We name our products to be able to communicate to the Doctor or financial advisor in this case what the product is composed of and he or she should know what different uses this product can be put to for your financial plan. I am not for one moment trying to compare or over-simplify or even complicate an industry or business but the intention here is to use an example to explain that some products are best consumed under advice. And apart from knowledge and information that a third party advisor can provide, the very fact that he or she is a third party in itself is of immense value. This does not mean that there are no knowledgeable investors and I do not think that investing though complicated can be as complicated or life threatening as administering drugs to one-self. But knowledge investors would actually appreciate and prefer a midcap fund being called just that and not something like a asset growth plan or early retirement plan! So the next time you are attracted by fancy nomenclature of any financial product may it be a mutual fund, PMS, insurance, a mortgage or a credit card, please consult your financial advisor and ascertain what purpose it can serve in your financial life. After all, as Shakespeare once said What's in a name? That which we call a rose by any other name would smell as sweet. Aashish P Somaiyaa Managing Director and CEO Motilal Oswal Asset Management Company Limited

3 Value Strategy The Strategy aims to benefit from the long term compounding effect on investments done in good businesses, run by great business managers for superior wealth creation. Value based stock selection Investment Approach: Buy & Hold Investments with Long term perspective Maximize post tax return due to Low Churn Fund Manager Strategy Type : Manish Sonthalia : Open ended Date of Inception : 24th March 2003 Benchmark : CNX Nifty Investment Horizon: 3 Years + Subscription Redemption Valuation Point FMCG Bosch Ltd. HDFC Bank Ltd. Tech Mahindra Limited Housing Development Finance Corporation Ltd. Tata Consultancy Services Ltd. Sun Ltd. State Bank Of India Larsen & Toubro Ltd. Asian Paints Ltd. Hero Motocorp Limited Performance Data Value Strategy & CNX Nifty Value Strategy CNX Nifty All Figures in % s Year 2 Year 3 Year 4 Year 5 Year Since Inception

4 Next Trillion Dollar Opportunity Strategy The strategy aims to deliver superior returns by investing in focused themes which are part of the next Trillion Dollar GDP growth opportunity. It aims to predominantly invest in Small & Mid Cap stocks with a focus on Identifying Emerging Stocks/Sectors. FMCG Diversified Stocks with Reasonable Valuation Concentration on Emerging Themes Buy & Hold Strategy Page Industries Ltd. & Bosch Ltd Fund Manager Strategy Type : Manish Sonthalia : Open ended Date of Inception : 11th Dec Benchmark : CNX MIDCAP Investment Horizon: 3 Years + Subscription Redemption Valuation Point Bajaj Finance Ltd. J&k Bank Ipca Lab Ltd. Voltas Ltd. Performance Data NTDOP CNX MIDCAP Next Trillion Dollar Opportunity Strategy CNX MIDCAP 1 Year 2 Year 3 Year 4 Year 5 Year Since Inception * All Figures in %

5 Invest India Strategy The Strategy aims to generate long term capital appreciation by creating a focused portfolio of high growth stocks having the potential to grow more than the nominal GDP for next 5-7 years across market capitalization and which are available at reasonable market prices. Buy Growth Stocks across Market capitalization which have the potential to grow at 1.5 times the nominal GDP for next 5-7 years. BUY & HOLD strategy, leading to low to medium churn thereby enhancing post-tax returns Fund Manager Strategy Type : Kunal Jadhwani : Open ended Date of Inception : 11th Feb Benchmark : BSE 200 Investment Horizon: 3 Years + Subscription Redemption Valuation Point FMCG Chemicals Retail Page Industries Ltd. HDFC Bank Ltd. Housing Development Finance Corporation Ltd. Tata Consultancy Services Ltd. Ipca Lab Ltd. Larsen & Toubro Ltd. Pidilite Industries Limited Bata India Ltd. City Union Bank Ltd. Invest India Strategy BSE 200 All Figures in % Performance Data IIS BSE & Month 3 Month 6 Month 1 Year 2 Year 3 Year Since Inception

6 Focused Series IV - Flexi Cap Strategy The Strategy aims to generate superior returns over a medium to long term by investing in only 8-10 companies across market capitalization. The Fund Manager will take active asset allocation calls between cash & equity. The strategy will also take active equity allocation calls between investments in large caps & mid caps & it will follow a policy of profit booking with predefined price targets. Active Equity Allocation between Mid caps & Large caps Active Asset Allocation calls between and Equity Strategy will follow a policy of profit booking with predefined price targets When the Client s AUM appreciates by 15%, the appreciation amount will be automatically paid-out. Portfolio Manager : Kunal Jadhwani Date of Inception : 07th Dec Benchmark : BSE 200 Investment Horizon: Months Subscription : No Redemption Valuation Point FMCG Chemicals Furniture / Thermoware Bosch Ltd. Tech Mahindra Limited Kotak Bank HDFC Bank Ltd. Page Industries Ltd. Pidilite Industries Limited Supreme Industries Limited Ipca Lab Ltd. Cummins India Ltd. Performance Data Focused Series - IV BSE Focused Series IV BSE 200 All Figures in % Month 3 Month 6 Month 1 Years 2 Years 3 Years Since Inception &

7 Focused Series V - A Contra Strategy The strategy aims to invest in fundamentally sound companies that can benefit from changes in a company's valuation which reflects a significant change in the markets view of the company over a horizon of three years. The Strategy focuses on investing in stocks that can benefit from growth in earnings, re-rating of business or higher valuation of assets. Objective is to increase return rather than reduce risk for Investors. Buy and hold philosophy low portfolio churn Follows the principle to pick best rather than diversification Concentrated Strategy Structure of less than 10 stocks Investment Horizon : Medium to Long term Fund Manager : Manish Sonthalia Date of Inception : 27th Sept Benchmark : BSE 200 Investment Horizon: 2 to 3 Years Subscription Redemption Valuation Point Oil and Gas J&k Bank Ing Vysya Bank Limited Petronet LNG Limited Bharat Petroleum Corpn. Ltd Triveni Turbine Limited Infosys Technologies Ltd. Reliance Industries Ltd Performance Data Focused Series - V BSE 200 Focused Series V BSE 200 All Figures in % & Month 3 Month 6 Month 1 Year 2 Year 3 Year Since Inception

8 Bulls Eye Strategy The Strategy aims to deliver returns in the short to medium term by investing in fundamentally sound stocks coupled with active profit booking. Chemicals Furniture / Thermoware Retail Active management Multi Cap Stategy Regular Profit Booking Portfolio Manager : Kunal Jadhwani Strategy Type : Open ended Date of Inception : 15th Dec Benchmark : BSE 200 Investment Horizon: 12 Months + Subscription Redemption Valuation Point HDFC Bank Ltd. Tech Mahindra Limited Axis Bank Ltd. Cummins India Ltd. Pidilite Industries Limited Larsen & Toubro Ltd. Tata Consultancy Services Ltd. Sundaram Finance Ltd Lupin Ltd. Ipca Lab Ltd. Supreme Industries Limited Bata India Ltd Performance Data Bulls Eye BSE 200 Bulls Eye Strategy BSE All Figures in % Year 2 Year 3 Year 4 Year 5 Year Since Inception & 24.85

9 Optima Strategy The Strategy aims to generate superior returns over the long period by investing in companies with growth potential and which are available at reasonable market price. Growth At Reasonable Price (GARP) Investment Horizon of 2 years + Active Portfolio Rebalancing Market Timing Situation based Multi Cap approach Portfolio Manager : Kunal Jadhwani Strategy Type : Open ended Date of Inception : 30th Dec 2008 Benchmark : BSE 200 Investment Horizon: 2 Years + Subscription Redemption Valuation Point Chemicals Furniture / Thermoware Retail HDFC Bank Ltd. Axis Bank Ltd. Tech Mahindra Limited Cummins India Ltd. Pidilite Industries Limited Larsen & Toubro Ltd. Sundaram Finance Ltd Tata Consultancy Services Ltd. Lupin Ltd. Ipca Lab Ltd. Supreme Industries Limited Bata India Ltd Performance Data Optima BSE & Optima Strategy BSE 200 All Figures in % Years 2 Years 3 Years 4 Years 5 Years Since Inception

10 Portfolio Actions The given stocks are part of portfolio of a model client of Value Strategy as on 31st July The stock forming part of the existing portfolio under Value Strategy may or may not be bought for new client. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Name of the PMS Strategies does not in any manner indicate its future prospects and returns. The Companies mentioned above is only for the purpose of explaining the concept and should not be construed as recommendations from MOAMC. Risk Disclosure And Disclaimer Disclaimer: This document has been prepared and issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact and terms and conditions. The information / data herein alone is not sufficient and shouldn't be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, charts/graphs, estimates and data included in this document are as on date and are subject to change without notice. While utmost care has been exercised while preparing this document, Motilal Oswal Asset Management Company Limited does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements/graphs contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible / liable for any decision taken on the basis of this presentation. No part of this document may be duplicated in whole or in part in any form and/or redistributed without prior written consent of the Motilal Oswal Asset Management Company Limited. Readers should before investing in the Strategy make their own investigation and seek appropriate professional advice. Investments in Securities are subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of the will be achieved. Clients under are not being offered any guaranteed/assured returns. Past performance of the Portfolio Manager does not indicate the future performance of any of the strategies. The name of the Strategies do not in any manner indicate their prospects or return. The investments may not be suited to all categories of investors. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Neither Motilal Oswal Asset Management Company Ltd. (MOAMC), nor any person connected with it, accepts any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice. Opinions, if any, expressed are our opinions as of the date of appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. The Portfolio Manager is not responsible for any loss or shortfall resulting from the operation of the strategy. Recipient shall understand that the aforementioned statements cannot disclose all the risks and characteristics. The recipient is requested to take into consideration all the risk factors including their financial condition, suitability to risk return, etc. and take professional advice before investing. As with any investment in securities, the value of the portfolio under management may go up or down depending on the various factors and forces affecting the capital market. Any forward - looking statements are not predictions and may be subject to change without notice. For tax consequences, each investor is advised to consult his / her own professional tax advisor. This document is not for public distribution and has been furnished solely for information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. No part of this material may be duplicated in any form and/or redistributed without' MOAMCs prior written consent. Distribution Restrictions - This material should not be circulated in countries where restrictions exist on soliciting business from potential clients residing in such countries. Recipients of this material should inform themselves about and observe any such restrictions. Recipients shall be solely liable for any liability incurred by them in this regard and will indemnify MOAMC for any liability it may incur in this respect. Securities investments are subject to market risk. Please read on carefully before investing. CDL00046_40112_010