IIFL PMS

Key Attributes

·         Inception Date: 31 December 2014

·         Number of Stocks: 29

·         Fund Manager Name: Aniruddha Sarkar

·         Fund Manager Experience: Total Exp – 10+ Years, With IIFL – 8 Years

·         Fund Manager Qualification: MBA in Finance from IMI, New Delhi and a Bachelor’s degree in Commerce from St. Xavier College, Calcutta

Investment Objective

The objective of the IIFL PMS strategy is to generate long term capital appreciation for investors from a portfolio of equity & equity related securities. The investment strategy is to invest in companies and in sectors that are available at a significant discount to their intrinsic value and provide earnings visibility.

Investment Philosophy

1) IIFL PMS portfolio is comprised of 15-20 high-quality companies which are business leaders have a strong management, low leverage and which offer a large margin of safety

2) Investments pertain to largely in 2 – 4 high conviction sectors

3) Identifying companies within the high conviction sectors that have attractive business models, strong balance sheets, good corporate governance practices and run by excellent management teams

4) Significant Alpha Generation with Low Risk (Past portfolios have a beta of 0.7 – 0.8 which is lower than most mutual funds)

5) Aims to target superior outperforming stocks over the benchmark through concentrated sector or stock positions where stocks are mostly held for the long term, typically almost always over 12 months

IIFL PMS Multi-Cap follows an interesting and insightful mechanism to dissect markets on exactly this mathematics i.e. corporate earnings. This is called SCDV framework, where by the whole of the listed market is divided on the basis of earnings profile of the companies, in the following four quadrants.
1. Seculars – PAT and ROE more than 15%
2. Cyclicals – PAT more than 15%, ROE less than 15%
3. Defensives – PAT less than 15%, ROE more than 15%
4. Value Traps – Both PAT and ROE less than 15%

For investors chasing low risk – low return, seculars are the most ideal basket. It comprises of names like HDFC, Kotak, Bajaj, Asian Paints etc. But, if the idea is to strive for more, one needs to discover “those Outliers” in cyclical, defensives and value traps which show a tendency of moving to seculars. This is where big alpha is made.

IIFL PMS Multi-Cap follows a Core and Tactical Allocation whereby 40% portfolio sits in Secular the basket which becomes “Core” of the portfolio and remaining 50-60% is Tactical allocation between Cyclicals, Defensives and some amount to Value Traps. Core portfolio provides stability and tactical portfolio is where alpha is sought. The belief largely is that companies that are not in the secular basket today will not always remain like that. There will be some outliers that over time will make a move to the secular basket in line with the improvement of their earnings profile. 

SCDV seeks to look out for these outliers in Cyclicals, Defensives and Value Traps. This is because when a company’s earnings profile improves, stock analysts rewards it with PE expansion and company thus commands a higher PE multiple. Likewise, there is case of PE contraction in line with a fall in earnings profile. So, one cannot just invest in the seculars of today and forget. One needs to follow a Core and a Tactical approach with a focus on reducing allocation to companies timely before the PE contraction and regularly discovering companies which could be up for PE expansion in the future.