Portfolio Analysis - Shailesh


(Shailesh) #1

I have received multiple questions on my current portfolio in my earlier thread : BULL in BEAR Market

This thread is in response to that . For regulatory reasons kindly read the following

I AM NOT SEBI AUTHORISED FINANCIAL ADVISOR NOR I INTEND TO BE ONE .

NO ONE IS EXPERT IN MARKET AND MARKET TEACHES US NEW LESSON EVERY YEAR

PL DON"T IMITATE THIS PORTFOLIO IN PART OR FULL . THIS CAN BE DANGEROUS IF READER DOES NOT UNDERSTAND WHY I BOUGHT IT AND WHEN I WILL SELL IT IN PART OR FULL… PLUS MY RISK PROFILE MAY NOT BE SAME AS YOURS .

ANY PORTFOLIO OR STOCK DISCUSSION SHOULD BE USED AS CASE OF LEARNING AND NOT AS RECOMMENDATION

Watch This Video before I get into details on how I construct my portfolio

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STEP 1 : ASSET ALLOCATION FOR YEAR 2018

Primary Objective : Long term survival and compounding

Like every year this year too I have put across a guideline for my portfolio equity / debt asset allocation . My equity portfolio is primarily large cap so I am using NIFTY as benchmark of market mood / behaviour

Equity % 30% 50% 60% 65% 70% 75% 80% 85% 90%
NIFTY LEVEL 15030 14529 13527 12525 11022 10020 8993 8094 6745

What above table means if NIFTY is @ 15000 my equity % in overall portfolio will fall to 30% and if nifty is @ 6800 equity allocation will increase to 90% .

Currently since NIFTY is around 11000 -10000 , my equity allocation is 73% …

Now comes the question why this range … This range is based on past NIFTY behaviour over 25 years.

Can NIFTY go beyond this range in this year – Sure it can but the probabilities are low .

What will I do if NIFTY goes beyond this range ,

Say < 6800 – Under No circumstance pure fixed income will fall below 10% of my portfolio . This MOS in for any black swan period like 1929 - 1948 when market equity market remained undervalued for nearly 20 years … Since such period are often deflationary - I assume fixed income can cover my annual expenses even if companies discontinued dividends …

Similarly if Nifty > 16000 in 2018 - I will retain my equity position at 30% and not reduce it …

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STEP 2 : Portfolio Construct :

Primary AIM : Portfolio Gr > Inflation + 8% -10%

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Current Fixed Income Components

LONG TERM BONDs

  1. Gilt Fund ( currently it is Kotak Gilt Fund )
  2. Perpetual Bond ( Tata Power )
  3. Tax saving bonds ( Multiple companies and with differing maturity profiles )

Since last year I have reduced Gilt fund % and moved into liquid funds . This year most of money is moving into Quasi bonds … More on that later , My Plan is in coming year I want to reduce Gilt funds to zero and shift to attractive Corporate Long term Bonds when available …

LIQUID FUNDS

HDFC Liquid Fund ( Feeder to Long term bonds depending upon interest rate )
ICICI Liquid Fund & Kotak Liquid Fund ( As alternative to cash for re-investment in Equity )

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Hitesh portfolio
Hitesh portfolio
(sambandham82) #2

I agree that at least 10% must be kept in fixed income due to black swan effect but when Nifty is at 16000 in the year-2018, at current EPS of 402, it will trade at 39 P/E. Even if we assume EPS grows by 20% to 482 by year end, Dec-2018 (5 months from now), it will trade at 33 P/E. At that point in time, even if we assign another 20% forward EPS growth for year-2019, forward EPS will be 578 and it will trade at 28 P/E of 1 year forward earnings in Dec-2018.

Don’t you think you will bring it down to 10% in NIFTY if not 0% ?


(Shailesh) #3

P correct me if I am wrong . You are saying I should reduce my equity allocation to less than 30% if Nifty goes > 16000 in Year 2018 .

The answer for the same comes through my Equity construct

10% -15% is Quasi Bond stocks and 20% - 30% is Stable compounders - These will be last to leave or may not exit from my portfolio .

Finally in every bull market there is a small relative bear market -

For example in 2000s when technology stocks were at peak traditional cyclic and some great compounders were in bear market . Similarly in last year bull market - many large caps were in bear market . This gives one always a chance to allocate some amount to Cyclic stocks depending upon sector which is in bear grip .

So I think there is always an opportunity to put atleast 30% of one’s PF in equity .


(sambandham82) #4

Thats fine as long as one look at valuation of individual stocks and pick them.


(Shailesh) #5

You are absolutely right . But it happens all the time —>

In 2005/ 2006 Bull market HUL was at Rs 100 @ historical low PE …
In 2015/ 2016 Bull market many large cap IT stocks were at available at less than 15 PE .
Currently when Nifty is making new highs there are many Mid caps / small caps making 3/5 year lows … without significant damage to their earning profile …

It is all about looking at bear market within bull market …


(Gagan) #6

Thank you @kb_snn for generously sharing your PF construct, this is really helpful.

I am trying to construct a Fixed income PF for myself, currently, My PF is 55% equity & 45 Debt%, but in debt, all 45% in liquid funds, so i was looking for better construct.
Hence questions are regarding same, you have mentioned:

  1. Can you please clarify whether the Move from Gilt Bonds towards Quasi Bonds & Corporate Long-term bond is permanent or temporary? How do you decide which one to go for? appreciate if you could elaborate on this.

  2. Can you please elaborate on Quasi Bond stocks with few examples?

  3. What kind of corporate long-term bonds you look for…? for ex: recently Indiabulls(9.2% yield) & TATA CAPITAL FINANCIAL SERVICES NCD (9.1% yield) & Aadhar Housing Finance(9.75% yield)
    now how shall one invest in such corporate bonds, I guess it would be the combination of Rating + Yield + secured/unsecured + maturity you look for.

but instead of relying on rating(As Rating could be rigged or bought) do you also cross-check underlying business, for example, recently AA rated IL&FS NCD bonds defaulted.
Could you please share what are the checks one should do before investing in Corporate Bonds.
also, do you favor diversification in corporate bonds or better to concentrate on AAA bonds only?

PS: I have applied for Tata capital finance NCD, simply based on Tata’s trust & decent yield.


(Shailesh) #7

As I see you are conservative investor and have 45% in liquid funds . In this context pl check portfolio of your liquid funds . I invest in liquid funds which has > 95% invested in Govt securities … so that I don’t have to take default risk . For example recent ILFS default has hit some liquid funds

Now coming to your questions

  1. Nothing is permanent in this world . One needs to monitor market and adapt investment accordingly . Corporate bonds are tax inefficient and also prone to credit defaults . But tax free bonds issued by PSU can be bought as and when you get opportunity . but limit your investment in tax free bonds to less than 10% of PF ( converting to cash when in needs is not easy and is not tax inefficient )

  2. Quasi bonds stocks - ( < 12 PE )

Regulated utilities with PPA signed and RBI is also part of this … Here you need to focus on utilities with better receivables record . NTPC , Power Grid .

Stocks of mature industries with low growth , high cash generation , zero debt and high dividend - IT services ( like infosys )

  1. On long term corporate bonds I have explained earlier – unless you get them in market at deep discount or your spouse is in low tax bracket it does not make sense

(Investor_No_1) #8

Very interesting points and thought process indeed.
Can you pls let me know in your debt part of portfolio what average post tax CAGR you expect (i.e u would be happy to achieve) and what you have got since you started investing in debt parts…thanks


(Shailesh) #9

The purpose of Fixed income portfolio is to provide dry powder for equity portfolio

Hence here one needs to be focus on credit risk and not return . So I don’t target any return from debt portfolio . I target return @ overall portfolio level.

Also In case of market provides opportunities one needs to break debt funds before 3 years ( even though it may be tax inefficient to do so )

This said last 5 years CAGR post tax for debt is slightly higher than 8% ( pulled up by Gilt funds and pulled down by liquid funds )


(shyamutty) #10

awaiting your picks in this market


(Shailesh) #11

This is the time when one adds more to existing portfolio ( as and when the price hits in your comfort zone ) . New ideas are risker to pursue unless you have studied / bought those stocks in past .

One sector where I have very low allocation in financials ( 2% ) - that is what I am trying to study and add more in this cycle .