Malabar Investments Indian Small & Mid-Cap Manager

Fund Objective

Over the next 3 to 5 years, generate higher profits by investing in a focused portfolio of firms that can expand their earnings at a 20%+ CAGR over the fund’s lifetime.

Investment Universe

Listed enterprises with a market capitalization of more than INR 5,000 crore and private companies with a market capitalization of more than INR 5,000 crore in the next two years Due to our target market capitalizations, the portfolio will comprise a mix of bigger small and midcap firms.

Investment style

A cash-generating, return-on-capital-focused investing strategy that emphasizes buying at a discount to intrinsic value.

Typical portfolio company

A company that is a market leader in a growing area, is effectively managed and is well positioned to dramatically scale up.

What do we avoid?

Enterprises that need a lot of capital, sectors with little distinction between participants, industries with a lot of government engagement, and very esoteric businesses that the team doesn’t understand

Focused Portfolio: We think that for creating significant long-term returns, a concentrated approach to portfolio management is necessary.

• We can do a high level of on-the-ground investigation on the firms and management teams since we invest in a smaller number of them.
• After 15 securities, the benefits of diversification begin to erode.
• Having big allocations to your highest conviction ideas can help you generate long-term alpha.

Key Levers used in Position Sizing

• • The business’s moat’s long-term viability
  • The management team’s quality
  • Runway for growth
  • Variability in growth outcomes
  • Incremental return on incremental capital employed

At the firm level (asset-liability matching), portfolio level (exposure to single securities, sector), and business level, the risk management framework handles important risks (mistakes). Our procedures are in place to guarantee that we stick to our investment strategy, which is to invest in well-run, high-quality companies at fair prices.

• While we are continuously raising funds and expanding the portfolio, they expect some lag in returns relative to the broader markets.
• As of December 31, 2021, asset-weighted returns for the Fund (IRR based on actual cash inflows and current gross value of the Fund) are 28.8%, compared to 22.6 per cent CAGR returns for the NIFTY Midcap Index.
• Given the constant inflows, the Fund’s average cash allocation over the previous two years has been 15%.
• Furthermore, throughout the previous two years, the Fund has had an average allocation of 11% to private assets, which are normally priced at cost.
• As a result, over the previous two years, 24 per cent of the portfolio was kept in cash or private instruments.