Quasi Bond Portfolio - As I had highlighted last year I started moving my money from debt funds to quasi bond … ( to 10% of Equity PF )
What are Quasi bonds …
Regulated Return Equities like utilities and very high stable cash flow generators with low growth
Why are they good option vis a vis debt funds …
When market are mis pricing these stocks , they often quote at single digit PE ie near 10% earning yield + this yield is growing @ 1% to 12% every year … This is far superior to debt returns which are flat at 6% -7% with zero growth
Lets take some of regulated utilities
NTPC - > 4 layer moat
-
Sales Moat : Assured PPA from Discoms unlike private players who are not sure if power take off will happen or not
-
RM Moat - Captive Mines + Coal India relative preference in allocation create RM moat for most operation
-
Financial Cost Moat - Access to cheaper finance - Public tax saving bonds ( < 8% interest rate ) and normal bonds too get better rates vis a vis other power generation companies who may have significantly higher rate ( e.g tata power perpetual bonds were at near 11% interest rate )
-
Scale Moat in capex - Most renewable firms have quoted very low capex rates/ final power cost per MW for NTPC projects … which will in turn help NTPC retain lowest cost producer tag for long time to come …
Now CERC has allowed NTPC to have regulated ROE of 15.5% till 2024 ++ lot of projects are getting capitalized in next few years assuring growth in revenues and profits …
NTPC hence qualifies for good debt substitution - It hence has been included in my Fixed income pf .
With near similar logic and with higher Mks is Power Grid . That too was added to my Quasi bond pf …
I will track this portion vis a vis debt fund performance over next 3 years …
In Equity Portion
Core Position : Limited / zero sales over next 3-5 years period - Reset for next 5 years is complete …
I have created 5 Core sector position – FMCG , IT , Consumer facing Energy , Pharma , Financial services ( pure services non lending companies) – each with 10% -15% allocation - Overall Equity pf allocation of 65%
Overall CORE sector position has PE of 21 , ROCE > 24% , Sales Gr of 13.5% , Near zero debt , Dividend Yield 2.1%
Opportunities Pf in progress - 26% of Equity PF
Opportunities Large cap : Telecom , Auto
Opportunities small cap : Consumer discretionaries esp in travel entertainment & hospitality , Real estate, Shipping companies
Opportunities Pf is value oriented PF … Focus is for < 5 years and may exit if valuation reaches target level.
Current Opportunities PF ratios : P/B < 1.4 , P/S < 1.4 , PE < 18 , Sales Gr > 12% , ROCE > 15% , Debt equity < 1 Price == > near 3 year/ 5 year low
Overall Asset Allocation 2019
Pure Debt funds + liquid funds > 18% of overall PF
Equity Allocation : 77% ( incl quasi bond )
Real estate & others < 5%