Portfolio Management Schemes run by savvy investment advisers are clocking huge returns and delighting their subscribers. A few days ago we saw the impressive performance registered by Porinju Veliyath’s Equity Intelligence and Nilesh Shah’s Envision Capital.
Now, it is the turn of Manish Bhandari’s Vallum Capital. Manish has revealed that the performance of Vallum Capital is as below:
Portfolio Performance Vallum India Discovery vs BSE S&P Mid Cap
1 Year (March Year 2014-15) 113.8% vs. 49.5%
CAGR Since Inception (Oct 11)* 45.1% vs 17.3%
*returns over 1 year are annualized; return for each investor will differ based on entry horizon.
The strategy followed by Vallum Capital for stock selection and portfolio construction is to invest in mid-market companies or business turnarounds and make sizable bets. The rationale is that these two pools attract fewer investors and equity value is mis-priced. This gives the margin of safety, adequate compensation for illiquidity, volatility and concentration.
Manish explains that average investors usually shun turnaround ideas due to ignorance, fear of compounding a past mistake, and fatigue and that this gives the intrepid investor a chance to scoop up these companies at throwaway valuations.
Manish has also briefly discussed the stocks that contributed to the stupendous performance. Though he has not given any names, it is easy to guess the names of some of the stocks.
He refers to a “pesticide company with unique intellectual property rights and trust of key global players has contributed significantly to this year’s performance”. My guess is that this company is PI Industries. He has publicly recommended and discussed this stock on several occasions.
He also refers to how an “investment in a pharma company with edge in oncology has paid us handsome return”. This is Shipla Medicare, also a stock known to be his favourite.
The reference to an “industrial company in steel business that went thorough painful transition of product portfolio and financial restructuring over the last few years. The enthusiasm and charisma of second generation management, its capability to scale business has overjoyed us” is to Pennar Industries.
KRBL is referred to as a “significant investment of in a leader in agricultural products and rice. The company has formidable brand in domestic and international markets and financial ratios comparable to a FMCG company.”
However, there are a couple of stocks that Manish refers to whose names are not clear.
The first is a “carton packaging company …. The packaging business was trading at compelling value, two times cash profit, although it was one of the most illiquid stock, I would ever bought in my investing history. The stock has contributed manifold return in short span of time and we plan to remain invested in this exciting space.”
This could be TCPL Packaging in which Dolly Khanna, Vijay Kedia and Anil Kumar Goel are already invested. TCPL Packaging is an illiquid stock and has given blockbuster returns. Alternatively, it could be a reference to Mold-Tek Packaging, also a Dolly Khanna favourite stock.
Manish also refers to a “wonderful home textile company, which draws its competitive advantage from availability of cotton in India. The company was recovering from Corporate Debt Restructuring (CDR) and had all right ingredients including good second generation management, potential of high Return on Equity and favorable global business environment. We have made more than threefold return on our initial investment and plan to remain invested for considerable period of time.”
This could be a reference to Welspun Syntex, which did have CDR issues and which is also now a multi-bagger.
Manish also refers to a “turnaround cement and ceramic tile manufacturer we invested this year. The company was in peak of losses due to unfolding of unforeseen events over the last few years. We were sold out to sincerity of purpose of promoters along with strong professional managerial capabilities. We are more than adequately compensated for our efforts of digging far deep while investing.”
I can’t guess the name of this company.
Manish also talks about an investment mistake in the form of “a metal company which looked promising due to its backward linkages, high margins and future prospects of business model. However, our investing experience was not very pleasant and we faltered in mid course on our conviction. We sold our position, albeit at no loss no profit and do not plan to visit that company again.”
I can’t guess the name of this company either.
Now, we have to eagerly wait and see whether Vallum Capital will be able to replicate its fantastic performance in FY 2015-16 as well.