High Five
In Sept 2022, Ampersand completed 5-years of managing the AIF. Our track record so far has been quite exemplary, considering the disruptive events which panned out during the course of short existence. This also includes market volatility induced by, SEBI reclassification based on market capitalisation in 2018, Covid-19 pandemic and the ongoing Russia-Ukraine conflict. So, except for the phase of heady market recovery in 2021, which was driven by combination of pent up demand and easy liquidity conditions, investment climate has been rather harsh and uncertain. Over various time periods fund has outperformed major indices.
Over the initial 5-year period since inception, Ampersand AIF delivered returns of 17.9% CAGR, which compares with 11.7% CAGR for benchmark (BSE 500), 11.7% CAGR for Nifty and 11.1% CAGR for Nifty Mid cap index.
India equities registered strong quarter
Despite global inflation and growth related concerns, Indian stock market recovered sharply during July-Sep 2022 quarter. Notable factors which aided India’s performance include, (1) good monsoons, (2) softening of crude prices, and (3) abatement of FII sales. India market gained 10.9%, while global benchmarks i.e., S&P500 declined this quarter.
Ampersand bettered the benchmark index during the period under review. Fund NAV was up 14%, while benchmark BSE 500 rose 10.9%.
Since inception and until end of quarter under review, our fund delivered returns of 17.1% CAGR. In comparison, Nifty registered 11.8% CAGR and Nifty mid cap 11.1% CAGR.
As on Sep 30, 2022, our fund consists of 30 stocks and a cash surplus of 6.4%.
Sector and stock selection aided performance
Our relatively stronger performance this quarter can be attributed to (1) benefit of timely deployment of cash close to the market lows in June, thereby increasing exposure to financial names, (2) positive reaction to strong earnings reported by several portfolio stocks, including larger holdings such as Varun Beverages, ICICI Bank, Trent.
A benchmarking exercise mandated by SEBI and conducted by CRISIL compared our performance with peers, and Ampersand AIF was ranked in the top quartile for each of periods of assessment since inception.
Ampersand has stuck to its core investment philosophy
Our investment philosophy has not altered in all these years, with a focus on bottom up ideation in companies which are well placed to gain share and enhance margins, leading to superior earnings growth. Our philosophy has been put to test on some occasions, but unhindered approach of backing sustainable themes has brought out several stock winners, and enabled us deliver a consistent performance. And while not every investment decision has worked in our favour, successful containment of misses has also aided better fund returns.
Focus on growth, but equally on managing risk
As the name suggests, we manage a growth oriented fund which is both sector and market cap agnostic. However, to mitigate liquidity and realisation risks, our portfolio typically includes a reasonable mix of large caps and quality mid-caps (Nifty 50 and Nifty next), as well as small caps only with disproportionate risk to reward equation. Our superior risk adjusted returns across different time periods, is testament to an investment process which has a reasonably high success rate. The table below illustrates how allocation has panned out since inception. It is important to note that some of the erstwhile small and mid-caps have moved up the market cap ladder to be represented in higher category.
Market recovery hinges on inflation peak-off
Sharp and sustained hike in interest rates by central banks, and consequent fall out on growth, is key overhang for stock markets globally. However, we should be in the final stages of the rate tightening cycle. In our view, Inflation has probably peaked and Interest rate will likely do the same by Dec 2022. Dramatic fall of over 65% in international shipping rate index (Refer Chart 1 below) is the lead indicator suggesting that Covid and Ukraine war driven supply shock issues are over and hence inflationary pressures will ease soon. While growth would usually follow with a lag, the ongoing bear phase in equities is likely to end as interest stability is assured.
