Emerging stars Fund

Emerging stars Fund

Investment Objective

The fund aims to generate long term capital appreciation by investing in a portfolio of small and mid cap companies that can emerge as the next stars

Fund Overview

Investment Style

‘Flywheel’ investing

• We are in the lookout for companies that are relentlessly taking small steps in the right direction that in turn builds on itself and gains momentum and produces more and more positive results, just like a flywheel.
• Focus is on to position the flywheel in a conducive environment where it is easier for the effects to take place.
• We also want the wheel spinning for a long time and hence look for long term structural trends.

‘Less is more’

• "Less risk by eliminating errors of commission will lead to more returns’ is the core underlying philosophy.
• As much as understanding what makes a good investment, it is equally or more important to understand what makes a bad investment.
• Investing world is rigged with landmines in the form of accounting shenanigans, value traps, socialization of profits, investment guzzlers without commensurate returns, sexy themes with no immediate catalysts, misleading managements and so on.
• Reducing the unknowns or decision variables helps reducing errors of commission.
• Intent is to pass the ‘marshmallow test’ of not giving in to the temptation of side-stepping the rules governing the investment philosophy for higher returns

Resultant portfolio will have the following characteristics -

• Concentrated portfolio
• Minimal churn
• Lower portfolio volatility
• Alpha generation, especially during downturns/bad times

Portfolio Construct & Risk Management

• Small and mid cap companies (upto 30,000Cr market cap) will constitute ≥ 70% of portfolio
• Portfolio will have 15 – 20 stocks
• Specific sector exposure limited to 40%
• Maximum allocation to a single stock at 15%
• Can remain in significant position in cash if deemed fit

Investment Process

• The journey to a smooth investing experience begins with laying the ‘ground’ rules on which to run the investments. These ‘ground’ rules are a mix of financial (profitability, leverage, cash flows, returns), managerial (experience, reputation, capital allocation, corporate governance) and business (growth, leadership) oriented.
• Next step is to identify the right investment ‘vehicle’ that can take us safely and comfortably to our destination in a timely and cost-efficient manner.
• Finding the right investment ‘vehicle’ involves multiple steps including attending investor conferences, developing analyst/fund manager network, regularly reading newspapers/magazines, annual reports and analyzing quarterly results.
• It is important to ‘test drive’ the vehicle by meeting management, talking to experts and conducting channel checks including plant visits and talking to retailers, distributors and competitors.
• Monitoring the health of the vehicle through follow-up calls/meetings, attending AGMs, result concalls and investor conferences is equally important to take timely decisions of buy, sell or hold.