long term<\/em> future interest rates, therefore, offers opportunity to take advantage that this dislocation triggers.<\/span><\/p>\n***<\/span><\/p>\nWhile the world markets were down 10%-30% for the calendar year 2022, India\u2019s Nifty50 index ended in green. This is one of the biggest outperformances in history versus many countries including the US. Though index is near its peak, broader market is not. Within our coverage too, there are a few companies that are still down 10%-30% from their previous highs without material change in their intrinsic values. We are deploying capital here and retain neutral stance<\/strong>.<\/span><\/p>\nA. PERFORMANCE<\/span><\/p>\n <\/p>\n
A1. Statutory PMS Performance Disclosure<\/span><\/span><\/h2>\n\n\n\nPortfolio<\/span><\/strong><\/td>\nYTD FY23<\/span><\/strong><\/td>\n\u00a0FY22<\/span><\/strong><\/td>\nFY 21\u00a0<\/span><\/strong><\/td>\nFY 20*<\/span><\/strong><\/td>\nSince Inception*<\/span><\/strong><\/td>\nOutper-formance<\/span><\/strong><\/td>\nAvg YTD Cash\u00a0 Bal.<\/span><\/strong><\/td>\n<\/tr>\n\nCED Long Term Focused Value (PMS)<\/span><\/strong><\/td>\n0.5%<\/span><\/strong><\/td>\n14.9%<\/span><\/strong><\/td>\n48.5%<\/span><\/strong><\/td>\n-9.5%<\/span><\/strong><\/td>\n13.6%<\/span><\/strong><\/td>\n| <\/td>\n | 36.0%<\/span><\/strong><\/td>\n<\/tr>\n\n| NSE Nifty 500 TRI (includes dividends)<\/span><\/td>\n | 4.7%<\/span><\/td>\n | 22.3%<\/span><\/td>\n | 77.6%<\/span><\/td>\n | -23.6%<\/span><\/td>\n | 17.4%<\/span><\/td>\n | -3.8%<\/span><\/td>\n | NIL<\/span><\/td>\n<\/tr>\n\n| NSE Nifty 50 TRI (includes dividends)<\/span><\/td>\n | 4.8%<\/span><\/td>\n | 20.3%<\/span><\/td>\n | 72.5%<\/span><\/td>\n | -23.5%<\/span><\/td>\n | 15.9%<\/span><\/td>\n | -2.3%<\/span><\/td>\n | NIL<\/span><\/td>\n<\/tr>\n\n| *From Jul 24, 2019; Since inception performance is annualised; Note: As required by SEBI, the returns are calculated on time weighted average (NAV) basis. The returns are NET OF ALL EXPENSES AND FEES. The returns pertain to ENTIRE portfolio of our one and only strategy. Individual investor returns may vary from above owing to different investment dates. Annual returns are audited but not verified by SEBI.<\/em><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n Care while Benchmarking Performance<\/span><\/strong><\/p>\nRegulations require us to benchmark our performance with an index every quarter. While over a full cycle such comparison is useful, we argue that it is dangerous during a one way rising and expensive market like the one of last 2 years. This is because all indices including Nifty50 or Nifty500 are value agnostic <\/em>indices. In other words, this means that they will increase the weight of constituent stocks that have done well and vice versa irrespective of their intrinsic values (Eg: Adani group stocks). In a rising market, expensive stocks – which a prudent investment approach would normally avoid \u2013will get higher weight in indices helping indices to post higher returns in near term albeit at a higher risk.<\/span><\/p>\nOver 3-5 years, falling 5% when indices fall 10% is not a desirable outcome even if we beat indices, for we would have lost even more after accounting for inflation. Investing aggressively in an expensive market like today has higher chances of above outcome. The only antidote to safeguard from this malady is not to overpay and wait for correct prices. Hence our higher than usual cash balance. Problem with this approach is that in short run expensive stocks can get more expensive, propel indices, and make a cautious approach like ours look foolish when compared quarterly with these indices. It is like comparing a marathoner with a sprinter. Both are running different races.<\/strong><\/span><\/p>\nThus, while looking at the above statutory table every quarter, you should remind yourselves that our race is against inflation first and indices later; absolute returns first and relative returns later. You should therefore prefer checking whether on absolute basis we are able to beat inflation over 3-5 year period. That\u2019s the minimum benchmark we need to beat. Given that our incentives are linked to performance and not AUMs, and we understand what we are doing, we will do better than that.<\/span><\/p>\n <\/p>\n A2. Underlying business performance<\/u><\/strong><\/span><\/p>\n <\/p>\n \n\n\nPast Twelve Months<\/span><\/strong><\/td>\nEarnings per unit (EPU)2<\/sup><\/strong><\/span><\/td>\nFY 2023 EPU (expected) <\/strong><\/span><\/td>\n<\/tr>\n\n| <\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \nSep 2022<\/span><\/strong><\/td>\n5.41<\/sup><\/strong><\/span><\/td>\n5.2-6.23<\/sup><\/strong><\/span><\/td>\n<\/tr>\n\n| Jun 2022 (Previous Quarter)<\/span><\/span><\/td>\n | 6.0<\/span><\/td>\n | 6.2-7.23<\/sup><\/span><\/td>\n<\/tr>\n\n| Sep 2021 (Previous Year)<\/span><\/span><\/td>\n | 5.7<\/span><\/td>\n | <\/td>\n<\/tr>\n | \n| Annual Change<\/span><\/td>\n | 2%<\/span>4<\/span><\/sup><\/td>\n| <\/td>\n<\/tr>\n | \n| CAGR since inception (Jun 2019)<\/span><\/td>\n | 9%<\/span><\/td>\n | <\/td>\n<\/tr>\n | \n| 1 <\/sup>Last four quarters ending Jun 2022. Results of Jun quarter are declared by Nov only. 2<\/sup> EPU = Total normalised earnings accruing to the aggregate portfolio divided by units outstanding. 3 <\/sup>Please note: the forward earnings per unit (EPU) are conservative estimates of our expectation of future earnings of underlying companies. In past we have been wrong \u2013 often by wide margin \u2013 in our estimates and there is a risk that we are wrong about the forward EPU reported to you above. <\/span><\/em><\/span>4 <\/sup>Adjusted earnings.<\/span><\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n Trailing Earnings:<\/strong> Adjusted trailing twelve months Earnings Per Unit (EPU) of underlying companies grew by 2% (including effects of cash equivalents that earn ~4%).\u00a0<\/span><\/p>\n <\/p>\n 1-Yr Forward Earnings:<\/strong> Against our start of the year expectation of earnings per unit of Rs 6.2-7.2 for FY23, we are trimming the estimate to Rs 5.2-6.<\/span><\/p>\n <\/p>\n A3. Underlying portfolio parameters<\/u><\/strong><\/span><\/p>\n <\/p>\n \n\n\nDec 2022<\/span><\/strong><\/td>\nTrailing P\/E<\/span><\/strong><\/td>\nForward P\/E<\/span><\/strong><\/td>\nPortfolio RoE<\/span><\/strong><\/td>\nPortfolio Turnover1<\/sup><\/span><\/strong><\/td>\n<\/tr>\n\nCED LTFV (PMS)<\/span><\/strong><\/td>\n28.7x<\/span><\/strong><\/td>\n24.6x-29.8x<\/span><\/strong><\/td>\n17.9%4<\/sup><\/span><\/strong><\/td>\n5.6%<\/span><\/strong><\/td>\n<\/tr>\n\n| NSE 50<\/span><\/td>\n | 21.8x2<\/sup><\/span><\/td>\n| –<\/span><\/td>\n | 15.0%3<\/sup><\/span><\/td>\n–<\/span><\/td>\n<\/tr>\n\n| NSE 500<\/span><\/td>\n | 22.9x2<\/sup><\/span><\/td>\n| –<\/span><\/td>\n | 13.7%3<\/sup><\/span><\/td>\n–<\/span><\/td>\n<\/tr>\n\n| 1<\/sup><\/em> \u2018sale of equity shares\u2019 divided by \u2018average portfolio value\u2019 during the year to date period. 2<\/sup> Source: NSE. 3<\/sup>Source: Ace Equity. 4<\/sup>Excluding cash equivalents.\u00a0<\/em><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n B. DETAILS ON PERFORMANCE<\/span><\/strong><\/span><\/h1>\nB1. MISTAKES AND LEARNINGS<\/span><\/span><\/h2>\nWe continue to retain higher than usual cash balance due to lack of abundant opportunities. Our incentives and objectives encourage us to act only when it makes sense. In hindsight of rising markets, this might feel like folly, however that\u2019s the cost of running a conservative investment operation. It, nonetheless, pays out over longer term.<\/span><\/p>\nFrom our two past mistakes- \u201cCera Sanitaryware\u201d<\/strong> and \u201c2015-16\u201d<\/strong> – we learnt that unless fundamentals are extremely compelling, it is better to be gradual in selling and buying respectively. From our past mistake on \u201cTreehouse Education\u201d <\/strong>we have learnt that bad management deserves a low price, it\u2019s seldom a bargain. In Dish TV<\/strong> we underestimated the competitive disruption but thankfully sold at breakeven. Tata Motors DVR<\/strong> taught us that cyclical investing requires a different mindset to moat investing and one needs to be quick to act when external environment turns adverse. In Talwalkars<\/strong>, we learnt that assessing promoter quality is a difficult job and we should err on the side of caution irrespective of how cheap quantitative valuations look. From DB Corp<\/strong> we learned that industries in structural decline will fail to get high multiples even if the industry is consolidated, competition limited and free cash flows healthy.\u00a0<\/span><\/p>\n<\/h2>\n
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