PMS

NJ EQUITY PMS

NJ Equity PMS (Portfolio Management System) is a new offering from the NJ PMS Platform. NJ PMS is managed by NJ Advisory Services Pvt. Ltd. (NJAS), a subsidiary of NJ India Invest Pvt. Ltd. NJAS is a SEBI licensed Portfolio Manager and manages AUM of 151.60 crores with 795 live accounts as on March 31st, 2015.

Till date, NJAS has offered a Mutual Fund – Fund of Funds (FOF) strategy called Dynamic Asset Allocation Portfolio (DAAP). With its strong background in Mutual Fund research and analysis, NJAS strength lies in identifying good Fund Managers to manage and grow client’s wealth through the Mutual Fund route. With this offering, NJAS endeavours to identify good PMS managers for managing wealth of HNI clients and family groups.

Why NJ PMS?
Investing through NJPMS offers the following advantages…

  • Clients can invest in multiple PMS strategies that are available on the NJ PMS platform.
  • Clients have the flexibility of splitting the investment amount across multiple PMS managers and strategies.
  • Clients can manage all the PMS strategies from a single Trading & Demat Account.

NJ PMS Advisor
As NJ PMS does not have the requisite experience in managing direct equity investments, we have tied up with Motilal Oswal Asset Management Co. Ltd. (MOAMC) who will advise us on the PMS portfolios. MOAMC is one of India’s leading PMS providers with AUMs of approx. Rs.3,430 crores and 5,440 live accounts as on March 31st, 2015.

Investment Philosophy: 
“Buy Right : Sit Tight” is the investment philosophy followed by the MOAMC which has been distilled from over 25 years of wealth creation.
Buy Right entails the following:

  1. Quality: Buying Quality businesses and management
  2. Growth: Focus on Growth in earnings and sustained ROE
  3. Longevity: Identify companies that have Longevity of competitive advantage or economic moat
  4. Price: Buy good businesses at fair Prices rather than fair businesses at good prices.

This approach is called the Q-G-L-P approach to buying the right stocks.

Sit Tight can be split into 2 parts:

  • Buy and Hold: Stocks are bought with the intention of holding them for the long term. Buying the right business requires skill and holding onto these businesses through the entire growth cycle requires even more skill and patience.
  • Focus: The portfolios consist of high conviction stocks only with the number of stocks per portfolio not exceeding 20 – 25 stocks. While the stocks are well diversified across sectors and industries, over-diversification of the portfolio can result in dilution of returns for investors and increase in market risk.

The following Equity Portfolios are being offered under NJ Equity PMS:

  • Large Cap Portfolio
  • Mid Cap Portfolio

LARGE CAP PORTFOLIO

This Portfolio is a mirror image of Motilal Oswal Value Strategy. The key highlights of the portfolio are as follows:

  1. Focus on companies that are growing 20-25% on their net worth year on year.
  2. Maintain a margin of safety by buying great businesses at a fraction of their true value.
  3. Focus on buying undervalued companies or buying reasonably priced companies with stable earnings/ cash flow.
  4. Money is made by investing for the long term only. No short cuts to wealth creation.
  5. Identity potential wealth creating companies by focussing on their individual strengths and management bandwidth.
  6. Portfolio size will be restricted to 15 – 20 stocks.

Strategy Objective
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.

This strategy will be implemented with the philosophy of value investing where a business is prudently picked for investment after a thorough study of its’ underlying hidden long-term potential. Value Investment involves determining the Intrinsic value of a stock, and investing in it if the difference between the value and the stock price provides a sufficient Margin of Safety.

Investment Process:
A rigorous investment process is followed covering the following:

  1. Creating an Investment Universe from existing and emerging Large Cap companies including event-driven ‘special situation’ ideas
  2. Doing a Quantitative Screening of the universe with focus on earnings, free cash flow, return on assets and earnings. This results in a long-list of around 500 stocks.
  3. Fundamental Analysis is done on each of the companies which covers ‘360 degree view’ of the company, identifying competitive advantages, nature, duration and sustainability of the business and the model and barriers to entry. This creates a short-list of 80 – 100 stocks.
  4. The Fund Portfolio is created from this short-list which comprises of the high conviction ideas with superior risk-adjusted returns for clients. The portfolio comprises of 15 – 20 stocks.

Performance Track Record:

3 years 5 years 7 years 10 years Since Inception
Large Cap Portfolio 23.06% 16.59% 15.55% 19.55% 27.57%
CNX Nifty 17.04% 10.09% 8.70% 15.35% 19.36%

Strategy Inception Date: Mar 24, 2003; The Above strategy returns are of a Model Client as on March 31st, 2015. An investment of Rs.1 crore made in this portfolio in March 2003 is worth Rs.18.69 crores as on March 31st, 2015. The same investment if made in the CNX Nifty is worth Rs.8.40 crores.

MID CAP PORTFOLIO

This Portfolio is a mirror image of Motilal Oswal Next Trillion Dollar Opportunities Portfolio (NTDOP). Before we share details about this portfolio, let us look at some characteristics of the Mid Cap market:

  • Large universe of stocks available for investments
  • The companies are generally under-owned by investors and under-researched by analysts.
  • The companies are in fewer business lines and therefore very focussed in their approach
  • The valuation as compared to Large cap stocks is very attractive.

Strategy Objective
The objective of the Mid Cap Portfolio is to deliver superior returns by investing in focused themes from the small and mid cap stock segment which will be part of the Next Trillion Dollar GDP growth opportunity. Some themes which are likely to participate in this opportunity are as follows:

  • Consumption Theme – which can include increasing consumer spending, retail, consumer durables, passenger cars and utility services
  • Banking and Financial Services – will include Banks, Broking houses, Insurance and other financial intermediaries which are likely to benefit from the high GDP growth and savings rates.
  • Infrastructure and related themes – which can include power, cement, capital goods, construction, real estate, engineering and any other sector likely to benefit from government spending.

Investment Process:
Stock selection plays a very important role in this portfolio due to the large universe of stocks and the limited research available in the market. The portfolio manager and his team will follow the following process for stock selection:

  1. Meeting with company management to understand the business dynamics
  2. Visit the company’s plants and work-sites to understand manufacturing process, quality of fixed assets and entry barriers to setting up business
  3. The focus of the meetings and visits is to understand the corporate governance standards, management track record and capabilities for scalability
  4. The portfolio manager with also keep an eye out for turnaround stories, emerging sectors and product innovations.

Performance Track Record:

3 years 5 years 7 years Since Inception
Mid Cap Portfolio 40.88% 28.83% 25.75% 19.87%
CNX Midcap 19.02% 11.02% 11.05% 6.03%

Strategy Inception Date: Dec 11, 2007; The Above strategy returns are of a Model Client as on March 31st, 2015. An investment of Rs.1 crore made in this portfolio in December 2007 is worth Rs.3.77 crores as on March 31st, 2015. The same investment if made in the CNX Mid Cap is worth Rs.1.54 crores.

Conclusion
The Large Cap and Mid Cap Portfolios have done very well in the last 3 – 5 years and with the positive sentiments in the economy, are expected to perform very well doing forward. Since the underlying asset class in both portfolios is equity, it comes with its inherent risks and volatility. The minimum time horizon recommended for investment in both portfolios is at least 3 – 5 years. These portfolios are designed and managed for long term investors who are looking to create substantial wealth for themselves and their families.

At NJ PMS, our endeavour has always been to provide our clients and partners with meaningful products which capture a significant chunk of the market upside while limiting the downside risk. Thereby, providing positive risk-adjusted returns across market cycles.

Happy and Safe Investing!!