|Click to view the performance of our Wealth Zoom portfolio|
First, the good news: the recent mid-cap mania on the bourses has ensured that Wealth Zoom (the ever aggressive hare) has finally caught up with Safe Wealth (the tortoise)!
In keeping with my allegedly timid style of fund management, I have kept high levels of cash in both portfolios. The churn in both portfolios is, however, uncomfortably high. We have incurred transaction expenses of 85 basis points (bps) of net asset value (NAV) in Wealth Zoom, and 71 bps of expenses in Safe Wealth.
Given that we have just completed five months, 85 bps implies over 200 bps of annualised churn cost in Zoom. This is something we will have to reduce via more confident (and less skittish) investing.
Meanwhile, it looks like there’s more turmoil coming up in global financial markets. The experts are coming up with the rough observation that emerging markets, particularly India, do look good bets but that current valuations are stretched in parts and that excesses are building up in frontliners as well as mid-caps.
|Click to view the performance of our Safe Wealth portfolio|
Yes Bank earned us a 50% gain in five months, and has no business quoting for such a high premium to its book value per share, except that I expect them to raise capital. Then again, at close to 40% appreciation, Bombay Rayon is worthy of selling just because it is getting a little too aggressive in lining up capacity expansions in a low return on equity space with a strengthening rupee.
Given its slowing profit growth, Shringar Cinemas looks costly on the basis of near-term visible profits but is definitely a good counter in the long run. I suspect the company might be up for a change of hands, which explains the recent run up against the fundamental news flow. We have sold our remaining 658 shares at over 43% profit. Media looks stretched right now but we will try and find some nuggets in this space over the next few weeks.
Finally, we are perhaps lucky to escape with a marginal loss in Gateway Distriparks, an otherwise good company in the logistics business facing declining margins. I think the logistics space will give us more opportunities to buy, and companies like Mundra Port, SICAL and Gati might turn out to be stronger bets than a single business story like Gateway Distriparks. Your suggestions are welcome via e-mail or at our portfolio blog.
For Safe Wealth, we are up marginally to 25.4% cash. Much against my gut feeling, I’ve taken the advice of reader Sanjib Mohapatra (see Reader’s Response) and sold Sun Pharma. Although I have great faith in the management of this company, a rising rupee and relative underperformance of the pharma sector give me no choice but to follow Sanjib’s disbelief in the prospects of this stock.
|Sanjib Mohapatra of Gurgaon has been following our portfolios. His experience and suggestions:|
By following your suggestions, my investments have appreciated:
Jindal Steel & Power: 210%, Tata Steel: 60%, HDFC Bank: 45%, Areva T&D: 80%
But I would like to comment on your strategy.
• I am sad because of your omission of L&T and Thermax, which have good fundamentals
• Reliance Capital needs a berth in Zoom portfolio
• I don't understand why Hindustan Unilever and Infosys command such a high percentage in your portfolio, when most fund managers of respected fund houses have reduced their holdings considerably on these stocks
• You tend to book profits with every small rise, thus missing the full wave
• You should not diversify for the sake of diversification. Why put money in Sun Pharma when it is unlikely to give great returns. I suggest you should sell HUL and Sun Pharma and reduce half the exposure of Infy till there is an uptrend in the tech sector. You should replace Pharma with Media and increase exposure to infrastructure and capital goods sector.
We have sold Sun Pharma at marginally over cost price. The alternatives that readers may consider for the health-care space are big (and boring): Ranbaxy, Cipla, Dr Reddy’s Laboratories and Glaxo Pharma. Could we have a contrarian bet in either Fortis Healthcare or Apollo Hospitals?
The other item that has faced the axe in Safe Wealth is Great Eastern Shipping, a vessel that looks like it has run its full course. At Rs 472, we have sold it for marginally over the estimated NAV of its ships and at over 40% profit from the level we entered it. The risk? We are exiting just when the company is adding dry bulk tonnage at a time when freight rates in this segment are peaking.
Again, it’s in response to Sanjib’s (justifiable) ranting that I have humbly allocated 3% to India’s highest quality engineering, construction and infrastructure ownership story: Larsen & Toubro. As its high valuation threatens to get higher, the chief worry that I have is: are we not too late in entering this fabulous story?
ICICI Bank is another Indiaproxy that simply cannot be ignored. Here is a world-class management putting together India’s largest multi-service financial powerhouse. Whether it is insurance, asset management, broking, distribution, para-banking, housing finance, overseas expansion, merchant banking or retail banking, ICICI Bank is among the fastest growing and largest in each of these spaces. At some two times adjusted book value per share (net of investment value in subsidiaries in related businesses) this is a stock to be savoured for the long term and deserves more than the 4% allocation that I have cautiously initiated.
As ever, your suggestions and ideas are welcome.