dhfl pramerica deep value strategy · term earnings power, then its short term price movement...

DHFL Pramerica

Deep Value Strategy

Be Yourself

“To be yourself in a world that is constantly trying to make you

something else is the greatest accomplishment ”

- Ralph Waldo Emerson

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

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

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

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

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

A robust process to refine investment choices

About 6000

• Total # companies listed in India

160 - 180

• # companies in the investment universe

20 - 25

• # companies in the portfolio

Track Record Filter

Size Filter

Earnings Power Filter

Price Filter

Stock Investment Universe

Investment Universe

of

160 – 180 companies

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

Points towards

sustainable Growth in

Earnings

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purchased in the first place are no longer valid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

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 long-

term 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”

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

1 2 3 4

Example 1 – Infosys Limited

1 2

3

(1) 3 year returns if purchased here = 3.3% 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.

Example 2 – Bharat Electronics Ltd

1

2

3

4

(1) 3 year returns if purchased here = 0 % 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






above stock.

Example 3 – State Bank of India

1

2

3

4

(1) 3 year returns if purchased here = 35.0 %


(3) 3 year returns if purchased here = (12.9) %









above stock.

Example 4 – Tata Motors Ltd



(3) Mid 2015 fall

1

2

3








above stock.

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)


1

2

3

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.

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

The traditional “risk-reward” chart

Money Market Short Term Funds

Medium Term Funds

FMPs Long Term Debt Funds

MIPs Balanced Funds

Diversified Equity Funds

Sector Funds

Risk

Return

Risk Return Matrix

The shaded portion represents equity products

Segmenting equity products differently

Established businesses

Newer businesses

High Low

Level of institutional imperatives

DHFL Pramerica

Deep Value PMS

Large cap funds

Mid-cap funds

Private equity

funds

Venture capital

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

This chart is created for illustrative purposes only

Strategy snapshot

Parameter Characteristic

Target capitalization range No bias

Target diversification 20-25 stocks (regular option)

10-15 stocks (concentrated option)

Minimum suggested investment

horizon

3 years

Benchmark Nifty 500 Index

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, 1993.

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

dhfl pramerica deep value strategy · term earnings power, then its short term price movement...

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