Abakkus Diversified Alpha Fund II

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About Fund Manager

Sunil Singhania : Founder, Abakkus Asset Manager LLP

Former CIO Equities of Reliance Nippon Life Asset Management (now Nippon Life India Asset Management) overseeing ~USD 11 billion of equity assets
First Indian to be appointed to the Global Board of CFA Institute, USA (2013-2019)
Ex-Honorary Chairman of Investment Committee of CFA Institute (2018-19)
Currently, on the IFRS Capital Markets Advisory Committee (CMAC) and the only Indian member to be appointed (2020-2023)
Rated as among the best fund managers (Rated best Fund Manager by Outlook Business in 2016 & 2017 over 10-year time frame)
CA & CFA Charter Holder

Investment philosophy

Risk reward equation

Expected returns must justify the risk / uncertainty taken
A good company might not necessarily be a good stock
Focus on the price we pay, and value derived
What is in the price?

Patient investors

Buy and hold
Invest in a stock as if investing in a business
Think like a partner

Agile and flexible

Each investment opportunity is looked upon individual merit
Not constrained to a particular theme or style

Alpha generators

Believe in investing with an endeavour to generate alpha over the markets rather than just allocating within benchmark index
Growth companies where profitability is expected to grow higher than market average
Fundamentally underpriced stocks with reasonable growth expectations
Mid Cap companies with a scalable business model and growth potential to become large cap

Fundamental driven

Bottom-up research with focus on balance sheet
Numbers speak more than presentations and hype
Returns ultimately are all about earnings

Happy to be contrarian

Prefer to be first, early and/or only investors
Do not chase the momentum
Open to look at companies across sectors, market caps and business cycles

Investment Approach

Benchmark Agnostic portfolio of around 40 companies “Bottom Up” investing in companies with decent profitable growth
Disciplined approach to investing across market caps and sectors
Focus on a value-conscious style of investing
Low churn long-term ideation-based approach to investing
Endeavour to generate alpha over 3–5 years holding period
Select IPO investments as an Anchor Investor \ QIB \ Pre IPO

Fund Characteristics

Unique 40:30:20:10 approach to portfolio construction
Capturing opportunities across market capitalization
Lower volatility through large cap and larger mid-cap exposure
Focus on alpha creation via exposure to mid, small & micro caps
Risk discipline and management by way of position sizing
Liquidity management as smaller capitalization companies have incrementally smaller weights

What To Expect

Profitable Businesses
Value Conscious Approach
Alpha focus
Diversification
Value Unlocking
Decent Earnings Growth
Decent ROE
Low Churn
Investment rather than allocation
Value paid commensurate to future profitability

AIF Positioning

Equity Market Outlook
Economic growth expected to accelerate, Valuations above 10-year average but reasonable. Indian economy relatively outperforming developed as well as other emerging markets

Portfolio Stance
Capturing opportunities across market capitalization

Approach
Value-conscious style of investing in companies having robust business models and earnings growth

Alpha Generation Approach
Investment rather than allocation-based approach across market caps

Themes we are Positive on
Financials, Domestic Growth & Consumption, Manufacturing, Capex, and Digital \ IT

Expected Market Earnings CAGR
14-15% CAGR

A unique MEETS framework

Management

Quality – Capability and track record
Capital Allocation – capex is fine if ROE is maintained or enhanced
Capital Distribution – fair to minority shareholders
Error in decision – Business errors vs avoidable mishaps

Earnings

Quality of earnings vs reported numbers
Actual earnings vs expected
Cyclical vs Structural earnings
Companies that can double profits in 4 years or less or where EV/EBITDA can halve in four years

Events/Trends

Stock movement because of events.
It can be Buy or Sell opportunity
Events on the horizon
Disruptive trends/New themes

Timing

Good company is not necessarily a good investment if price is not right
What is the price discounting
Time frame of investment
Mean Reversion

Structural

Size of the opportunity
Competitive positioning / MOAT
Consistent growth in profits

What They Do?

Small Cap

Invest in new sectors and emerging themes
Bank on entrepreneurship which is thriving in India
Companies with unique positioning in their respective sector
Small companies but in niche sectors
Opportunistic exposure to events, special situations
Under Researched \ Disbelief

Micro Cap

Undiscovered companies with long term high growth potential
Sound businesses that are priced significantly below our estimation
Under penetrated sectors / industries having Macro tailwinds
Invest in potential turnaround stories
Companies with less awareness / research

5D Investment process

DISCOVER
From universe of 6000 companies, ~1500 companies are investable

DELVE
Deeper into ~350 companies with the help of experienced investment team using MEETS framework

DEVELOP
Macro and microanalysis on >100 companies

DETAIL
Idea generation on ~75 stocks

DELIVER
Portfolio construction and risk monitoring of ~40* stocks

Exit Discipline

Fundamentals don’t pan out as expected due to sector deterioration, company specific issues, governance issues.
Not shy to accept when thesis goes wrong.
Stocks may do much better than expected.
Position becomes insignificant and can’t /don’t want to add.
New investment idea better than existing holding in terms of risk reward.

Avoid the four “C” s

Chase Momentum
We would let fundamentals drive our investment decision rather than price movements

Churn Unnecessarily
No trading. No needless churning of the portfolio

Copy & Mimic
We will not be influenced by ‘herd mentality’. All investments have to be necessarily worked internally

Credit Risk – Fractured Balance Sheet
We believe it is very difficult to rebuild a broken balance sheet and these stocks eventually turn into value traps and hence best avoided

Risk management

Company Risk
The best way to handle company risk is by knowing in-depth details what you own and why you own it. There is no substitute for this. Our uncompromised focus on balance sheet and numbers will help us in mitigating company risk

Valuation Risk
While there is no right or wrong valuation number, we are definitely wary of overpaying. We maintain strict discipline on this

Market Risk
We would be focusing more on the portfolio than trying the futile guess over where markets are headed. While we would be definitely monitoring the market, we believe the best way to handle market risk is by being patient.

Liquidity Risk
In mid and small cap investing liquidity can be a near-term risk, the portfolio is designed to take care of this, and we would urge investors to factor a 3–5-year time horizon

Concentration Risk
Endeavour to have adequately diversified portfolio across sectors and stocks

Why Abakkus

Experience

Backed by a well-qualified dedicated team of professionals that have cumulative experience of ~200 years

Performance

A well-established performance track record over 2 decades in public equity funds and across all market cycles

Commitment

Follow a start-up culture with high degree of commitment, urgency and passion

Positioning

Focused investment in Alpha plays beyond the large number of listed companies supported by non-consensus, in-house research and independent thoughts

Opportunistic

Greater flexibility in investing into new sectors, new themes which are backed by entrepreneur driven economy

Consistent

Investment team has delivered consistently across market cycles

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Fund Overview

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