DHFL Pramerica Deep Value Strategy

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1 DHFL Pramerica Deep Value Strategy

2 Be Yourself To be yourself in a world that is constantly trying to make you something else is the greatest accomplishment - Ralph Waldo Emerson

3 PMS in an Investor s Portfolio Should be complementary to the client s mutual fund portfolio Should have a different investment philosophy and style Being different, a PMS helps the client diversify across products effectively

4 How can a PMS be different? Be less affected by daily or monthly comparison Stick to a disciplined and logical investment philosophy Focus on the long term only

5 Two broad ways to invest successfully. Method 1 List out the critical success factors in investing and try and follow the same Method 2 List out the most probable causes for failure and try and avoid them The avoidance of loss is the surest way to ensure a profitable outcome - Seth Klarman

6 Temporary versus Permanent loss For an investor, the real risk in the stock market is the risk of permanent loss All shares are subject to price fluctuations; therefore temporary losses are unavoidable Permanent loss occurs when an investment is made In a substandard business In a company where the management is questionable At a price that is exorbitantly high

7 Our proposition A portfolio construction that takes active steps to reduce the incidence of the three major causes of permanent loss, thereby increasing the chances of success over the long term A portfolio that is by and large different to the mainline mutual funds, thereby acting as a diversification tool for the investor

8 A robust process to refine investment choices About Total # companies listed in India # companies in the investment universe Track Record Filter Size Filter Earnings Power Filter # companies in the portfolio Price Filter

9 Stock Investment Universe Consistent track record of generating above average Return on Capital Employed (RoCE*) Consistent track record of generating positive Free Cash Flows History of positive Minority Shareholder Bias Investment Universe of companies Points towards sustainable Growth in Earnings

10 When do we sell a stock? When the assumptions with which the stock was purchased in the first place are no longer valid When the stock s price goes well beyond what we think it is worth* When for the same perceived level of risk, we spot a superior opportunity* When there is a redemption request (*) Note: It shall be our endeavour to keep the chances of short term capital gains taxes to the minimum. Therefore to the extent possible, we shall refrain from selling within a period of 12 months

11 Buying when the future is uncertain A stock is available cheap only when the general market does not expect it to do well in the short term Therefore, if an investor wishes to beat the market he/she should purchase the stock before the market does (i.e., buy when the fear caused by the uncertainty still exists in the minds of most investors) If one is confident about the quality of the company and its longterm earnings power, then its short term price movement should be of less importance High uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen - Seth Klarman in Margin of Safety

12 Advantages of buying early There is less competition to buy and therefore prices are more attractive Helps accumulate a decent quantity before the price moves up Significant holding helps the overall portfolio if the stock goes up manifold If price falls after the initial purchase, we have the chance to buy more of a good company s stock at a cheaper price

13 Example 1 Infosys Limited (1) 3 year returns if purchased here = 3.3% p.a. (2) 3 year returns if purchased here = 29.8% p.a. (3) 3 year returns if purchased here = 4.9% p.a. Chart updated till 17/11/2015. Disclaimer: The reference to stock is for illustration purpose only. It should not be considered as a recommendation or opinion from DHFL Pramerica Asset Managers Private Limited (Portfolio Manager) on the above mentioned stock. The Portfolio Manager is not guaranteeing or promising or forecasting any returns. The Portfolio Manager or its affiliates may or may not have any present or future position in the above stock.

14 Example 2 Bharat Electronics Ltd (1) 3 year returns if purchased here = 0 % p.a. (2) 3 year returns if purchased here = 19.2% p.a. (3) 3 year returns if purchased here = (18.8)% p.a. (4) 2 year returns if purchased here = 89.1 % p.a. Chart updated till 20/10/2015Disclaimer: The reference to stock is for illustration purpose only. It should not be considered as a recommendation or opinion from DHFL Pramerica Asset Managers Private Limited (Portfolio Manager) on the above mentioned stock. The Portfolio Manager is not guaranteeing or promising or forecasting any returns. The Portfolio Manager or its affiliates may or may not have any present or future position in the above stock.

15 Example 3 State Bank of India (1) 3 year returns if purchased here = 35.0 % (2) 3 year returns if purchased here = 7.1 % (3) 3 year returns if purchased here = (12.9) % (4) 2 year returns if purchased here = 22.0 % Chart updated till 16/11/2015. Disclaimer: The reference to stock is for illustration purpose only. It should not be considered as a recommendation or opinion from DHFL Pramerica Asset Managers Private Limited (Portfolio Manager) on the above mentioned stock. The Portfolio Manager is not guaranteeing or promising or forecasting any returns. The Portfolio Manager or its affiliates may or may not have any present or future position in the above stock.

16 Example 4 Tata Motors Ltd (1) 3 year returns if purchased here = 97.2 % (2) 3 year returns if purchased here = 13.8 % (3) Mid 2015 fall Chart updated till 29/10/2015. Disclaimer: The reference to stock is for illustration purpose only. It should not be considered as a recommendation or opinion from DHFL Pramerica Asset Managers Private Limited (Portfolio Manager) on the above mentioned stock. The Portfolio Manager is not guaranteeing or promising or forecasting any returns. The Portfolio Manager or its affiliates may or may not have any present or future position in the above stock.

17 Example 5 Nestle India (sometimes, there are exceptions) (1) 3 year returns if purchased here = 16.5% (2) 3 year returns = 33.7 % (An exceptional case, mostly driven by the Lehman crisis) (3) 3 year returns if purchased here = 6.1 % Chart updated till 29/10/2015 Disclaimer: The reference to stock is for illustration purpose only. It should not be considered as a recommendation or opinion from DHFL Pramerica Asset Managers Private Limited (Portfolio Manager) on the above mentioned stock. The Portfolio Manager is not guaranteeing or promising or forecasting any returns. The Portfolio Manager or its affiliates may or may not have any present or future position in the above stock.

18 Why invest with us? Bulk of the participants in the market seek quicker returns and tend to avoid opportunities that do not show a promise of quicker returns The Strategy sees an investment opportunity by having a different time horizon to investing. We see opportunities in good businesses when they are in the midst of temporary difficulties If such an opportunity arises in a poor business, we are not interested in exploiting it. Our proposition is to buy good businesses ignored by a majority of investors in the market, and hold them till they become popular again An investment process that naturally provides the investor with a qualitatively different portfolio

19 The traditional risk-reward chart Risk Return Matrix Risk Money Market Short Term Funds Medium Term Funds FMPs Long Term Debt Funds Return MIPs Balanced Funds Diversified Equity Funds Sector Funds The shaded portion represents equity products

20 Segmenting equity products differently Established businesses Low DHFL Pramerica Deep Value PMS Mid-cap funds Level of institutional imperatives Large cap funds High Venture capital funds Private equity funds Institutional imperatives (1) To be close to fully-invested at all times (2) Focus on outperformance at all times (3) To be close to a benchmark index Newer businesses This chart is created for illustrative purposes only

21 Strategy snapshot Parameter Characteristic Target capitalization range Target diversification Minimum suggested investment horizon Benchmark No bias stocks (regular option) stocks (concentrated option) 3 years Nifty 500 Index

22 Important mandatory information DHFL Pramerica Asset Managers Pvt. Ltd. (erstwhile Pramerica Asset Managers Pvt. Ltd.) is registered with SEBI as Portfolio Manager as Portfolio Manager under SEBI (Portfolio Managers) Regulations, RISK FACTORS This Document is for information purpose only. This Document and the Information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products (collectively Products ) mentioned in this Document or an attempt to influence the opinion or behavior of the Investors/Recipients. Any use of the information contained herein for investment related decisions by the Investors/Recipients is at their sole discretion & risk. Please read the Disclosure Document and the agreement along with the related documents carefully before investing. Investments in Products are subject to market risks, various micro and macro factors and forces affecting the capital markets and include price fluctuation risks. There is no assurance or guarantee/warranty that the objectives of any of the Products will be achieved. The investments may not be suited to all categories of Investors/Recipients. Investors/Recipients must make their own investment decisions based on their own specific investment objectives, their financial position and using such independent professional advisors, as they believe necessary, before investing in such Products. Pramerica is the trade name used by Prudential Financial, Inc.,(PFI) a company incorporated and with its principal place of business in the United States, and by its affiliated companies in select countries outside the United States. None of these companies are affiliated in any manner with Prudential plc, a company incorporated in the United Kingdom. Presentation dated December 10, 2015