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Gaining the ‘Sector Advantage’ : Strong will get Stronger

Gaining the ‘Sector Advantage’ : Strong will get Stronger
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When it comes to investing, there’s no shortage of options out there. From stocks to bonds to real estate and beyond, it can be tough to know where to put your money. But for those looking for a long-term strategy with a focus on growth, investing in high-quality companies from a variety of industries can be a smart move.

The benefits of diversification

By spreading your investments across multiple sectors, you can reduce your risk and protect your portfolio from the ups and downs of any one particular industry. For example, if you’re heavily invested in the tech sector and there’s a sudden downturn, your portfolio could take a major hit. But if you also have investments in Capital Goods, Metal & Construction Minerals, Consumer Goods and other industries, you’ll be better insulated from any one sector’s performance.

Choosing high-quality companies

Of course, not all companies are created equal. When investing in a variety of industries, it’s important to focus on the best quality companies in each sector. These are companies that have a strong track record of growth, a solid balance sheet, and a competitive advantage over their peers. By investing in these types of companies, you’re positioning yourself for long-term success.

  • The median age of listing for such companies is 19 Years
  • Solid Fundamentals- For each of the past 5 years:
    • Consistent Growth in Revenue and Reserves
    • Margin Expansion
  • Margin of Safety- Median PE of 15x

Case studies and examples

Let’s take a look at some real-world examples of how investing in high-quality companies from a variety of industries can pay off. 

Case Study 1: The Growth Portfolio

This portfolio consists of companies across different sectors that have demonstrated strong growth over the past five years. These companies have consistently outperformed their peers and have a strong track record of revenue and earnings growth. Some of the companies in this portfolio include Jindal Steel & Power, Schaeffler, Redington, and RHIM. Over the past 2.5 years, this portfolio has grown at an annual rate of over 40%, significantly outperforming the Nifty 50. 

A Rs. 100 invested on inception is today valued at 221 vs only 151.69 in the Nifty

Case Study 2: Great Quality Businesses

Most of the companies in the portfolio are multinational companies and away from any market chatter. Lack of attention from the broader street helps us buy good quality businesses at great prices. They also help us with stability in earnings prediction by managing expectations on the street and keeping their stock price less volatile. Companies like Schaeffler, Cummins, Bluestar are household names but we would rarely hear them in the media, simply due to their consistency.

Case Study 3: Benefit from Cyclicality

The portfolio works on a proprietary algorithm developed in-house that understands cyclicality and macroeconomic indicators. The strategy is autonomous and dynamic which lets it move allocations towards industries which it believes to be undervalued and misunderstood. Most of our returns are attributable to skill rather than luck!

The portfolio skewed allocation to Metal & Minerals in August, avg stock returned 40%

Recently the portfolio moved weights to Consumer Durables in January, average return 20%

Why should anyone consider this portfolio?

Investing in high-quality companies from a variety of industries is an ideal investment strategy for anyone, regardless of age or risk tolerance. 

  • For younger investors, this strategy can provide long-term growth potential that can help build wealth over time. 
  • For more risk-averse investors, this strategy can provide stability and protection against market volatility. 

And because this portfolio is multi-cap, we don’t have to worry about liquidity issues.

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Gaining the ‘Sector Advantage’ : Strong will get Stronger