Series 46 – Our Annual Letter 2023 – The Year of Global Bull Market

This episode, we begin the year with our Annual Letter that briefs our journey through 2023. We have highlighted the key points that we have covered in the letter.

2023 has been a year of Global Bull Market and a pivotal year for the Indian Markets with strong growth across sectors with very strong domestic inflows. The equity market performance was driven by two main factors- strong earnings growth which was backed by strong liquidity. In the letter, we have given a perspective of market’s valuation by providing the Nifty’s past valuations vs earnings growth rate for last 7.5 years. Benchmarking valuations of Nifty, the market is priced neither expensive or cheap today and it is important to position in the right pockets of growth today.

Our Returns and Portfolio Profile– Dec 2023- We have broken down our Calendar Year Returns since inception on a yearly basis. Our fund has delivered an Annualised IRR of 20.62% (net of fees) as against Nifty which has delivered an IRR of 15.11% over the same period. We keep re-iterating to our investors that ITUS does not run a benchmark-based fund and we will deviate significantly from the index and sector weighs- and with this regard we are underweight financials as we speak. We have also highlighted our portfolio Cash Flow Growing at 19.2% and ROIC consistently at 21%. We expect this trend to continue within the portfolio. We have also given our portfolio positioning– the core sectors have not changed significantly. We have increased our exposure to power sector considering a theme that we preferred from a structural perspective.

What is ‘Our way’ of running the fund– When we run non-model portfolio and hold cash, often asked question is- ‘Are we timing the market?’ Our way of running the fund is avoid losing money as we strive for consistency. The letter has beautifully quoted metaphors that illustrates our thought process. To maintain our consistency, we do not mind being patient in searching for opportunities and hence take time to fully deploy. We have also highlighted our reason to hold cash.

Our Position Sizing and Framework– Upsizing or downsizing of a position with ITUS is a journey that evolves with changing business dynamics and external factors too. We have briefed on how allocation acts as bridge between Circle of Competence and Circle of ignorance. Allocation and our position size is  a function of growth visibility along with valuation comfort. When both aligns you would see our portfolio concentrated to 15-18 investments otherwise it would be a mix of 25-30 investments at any point in time. We’ve also outlined the three buckets guiding our position sizing. Our allocation and position sizing approach helps us stay disciplined, protect against downsides, and build a robust long-term portfolio.

In the letter we have also reviewed two of our positions – one Indus Ind Bank (a sector which we are underweight but where we took an exposure) and two NTPC (in power sector). We have also evaluated the risk reward opportunities into 2024 and given a summary of our portfolio positioning today across sectors. Do have a look at the attached Investor Letter for better understanding of what was discussed above.

Continuously keeping you informed about our SIP program is a key commitment for us as SIP presents investors with a convenient avenue to regularly infuse capital into their portfolios. Feel free to check out the benefits for your clients. If you need more info, reach out to your dedicated relationship manager at [email protected].

These weekly episodes are now available in our website for your quick read and you may access the same in the below link.

Weekly Enlightenment Archives – ITUS Capital