Presentation to select HNIs- Aug 2017
- 1. Analytical rigor meets a disciplined investing process August 15, 2017 | SIENA HOTEL- CHAPEL HILL, NC
- 2. Gaurav Aggarwal, CFA, CPA, CIPM is the co-founder and co-portfolio manager of Metis Opportunity Fund (MOF). Prior to starting Metis in 2011, he was a senior analyst with portfolio management duties over $50 million in fund of fund assets at a leading regional investment bank (Global Investment House) in the Middle East. Prior to this, he was with Bay Harbour Management, a $1.2 billion distressed debt and equity hedge fund in New York City. He has also served as an analyst with Polen Capital Management, a $8 billion+ long-only firm with a very successful long-term track record. He received an M.S. in Accounting (specializing in Finance) and B.S. in Business Administration from the University of North Carolina at Chapel Hill. He has publicly committed to create a charity corpus by initially allocating 10% of his annual share of earnings (management and incentive fees) from fund management. He will in the future then deploy this corpus to charity/cause of his choice. Please check out my partner’s (Piyush Sharma) profile online Gaurav Aggarwal, CFA, CPA, CIPM| Co-Founder & Co- Portfolio Manager Metis Capital Management Ltd. gaurav@metisopportunity.com | www.metisopportunity.com M: 919-537-5626 or 919-665-0696
- 3. 1. As it should be, I want to keep focus on the economics of the mid-long term Indian investment opportunity and not get into social, political (even Modi!), infrastructure/traffic/bureaucracy, state of real estate market (it will also do well over time but lot of growing pains and we are not experts in RE), US vs. India. Even though lot of these factors can drive or be a symptom of economic growth. 2. US economy doing ok, India doing better and will continue to do better based on fundamental, sustainable drivers like demographics and low base; valuations about same at 19x forward but getting at least 3x growth- this, ie macro, is not our focus internally and has little to do with our consistent outperformance since 2011 3. If I am unable to convince you that Indian equities deserves a strategic sustained allocation in your portfolio then I have not done my job. In my view, it should be thought of and held steadfast, like one does with their family homes if bought well. Just a reminder: investing is at the intersection of psychology and economics & all stock value is created in future so subjective issues are essential in making optimal
- 4. 6+ year track record (in INR, 17% net annualized vs. 12% gross for benchmark index; in USD, 12% vs. 8%) in listed Indian equities, yearly outperformance average of 5%, max drawdown of 21% vs. 27% for index; $25m firm wide assets with a long-term asset base of families in Gulf, India, and US- this is a considerable long-term advantage for us Growth (5x AUM growth in last 3 years)- Fund managers all have our canned stories (winning and losing ideas, etc.)- the investor must ask questions that truly probe manager psyche and give them insights into how manager will perform in the next recession and over future economic cycles Better if definition of risk is in basic alignment: our central definition of risk is not volatility, Sharpe ratio, etc. but permanent loss of capital given our long-term business model…for this we diligently follow the BMSV model (example to follow) with stringent checklists It is hard and a real treat since so rare when the investor and manager come into alignment and able to build long-term wealth together. Has to be a mutual fit with long- term goals aligned and as much transparency/communication as desired by investor
- 5. 5 Our process is highly iterative in which we play devil’s advocate and try to “kill” our best ideas. Some of the reasons why an idea may be “killed”: 1. Valuation, 2. Management integrity/ability, 3. Strategic advantage not defensible enough, 4. Lack of accounting clarity, 5. Lack of identifiable catalyst(s), etc. 1. Screening target universe >> Growth >> Cash Generation Ability >> Accounting Clarity >> Margin Sustenance 4. How much should we pay ? Risk Management 2. Digging Deeper >> Do absolute valuations suggest material >> Cap industry-wise exposure >> Is growth sustainable? upside (20%+), despite conservative expectations? >> Manage sensitive exposure >> Are accounting disclosures appropriate? >> Current valuation should ascribe little or no >> Can position be unwinded quickly? >> Does this business have defensible advantages? value to material optionality. >> Get comfortable with level of speculative >> Does it have pricing power? >> Are technicals (value-based) favorable for entry? momentum. >> Is capital deployed appropriately? >> Is there focus on shareholder value? >> Does management stay ahead of competition? >> Is management shareholder-friendly? 3. Identifying quantifiable optionality >> Can existing assets be deployed elsewhere? >> Can existing moat be leveraged for a new opportunity? >> Is the opportunity quantifiable? >> Can we capture this optionality cheaply?
- 6. Example of an investment we hold in MOF Time Technoplast (3600 employees; started in 1992; Mumbai HQ) bought first stake almost 3 years ago when MV was $150m)- discovered reading in weekly CM Leading diversified (over 900 institutional customers) plastic product (drums, cans, cylinders, etc.) manufacturer with focus on industrial packaging (#3 in world; #1 in Asia) Last 10 years over 20% CAGR sales; 14% net profit; 18% OPM Passionate (when asked in analyst call which overseas country most potential he said it was like choosing among his babies) and driven management led by Anil Jain- focused on ROIC Met him in Mumbai and saw HQ- frugal yet focused on prudent growth Did, like we do with all our holdings, conservative DCF (was also trading at BV) and had minimum 30% upside in 2014 Price low b/c had gone bit overboard (800cr+/$100m+ debt) on overseas expansion which took time to ramp up—nature of biz, have cut back to 9 countries (leader in 8) Had 1% dividend yield back then and was convinced on mgmt (innovative products like comp cylinders) and plastic growth- now MV is nearing $600m
- 7. 7
- 8. Key Facts & Offering Terms Legal Structure Open-ended limited liability company, domiciled in Republic of Mauritius Fund Manager/GIPS Compliant? Metis Capital Management Ltd./Yes, independently verified Custodian/Broker Kotak Mahindra (Intl.) Ltd. Regulator Financial Services Commission Administrator Equinoxe Alternative Investment Services (Mauritius) Auditor Ernst & Young (Mauritius) Strategy India long bias listed equity (Inception in April 2011) Benchmark S&P BSE 500 Total Return (TR) Investment Horizon 3+ Years Base Currency of Fund USD Subscription/Redemption Monthly / Monthly (notice of 20 days) Entry Fee None Exit Fee (Class A/Class B) None (after the first year); up to 1.50% (prior to first year) / Contact Manager Management Fees (Class A/Class B) Up to 1.5% (size-dependent) / 1% Performance Fees (Class A/Class B) 15% over a variable hurdle rate (10-year GOI bond yield) / 10% over 10% hurdle rate Minimum Investment USD 100,000 Incremental Investment USD 50,000 Managed Accounts option? Possible, contingent on a higher minimum investment Firm AUM USD 25 Mil 8
- 9. 9 MOF Portfolio (INR) Latest Qty. Gross Avg. Cost Price August 11, 2017 EOD Gross P/L (INR) ROC Latest Qty. MV (INR) Weight (%) 1 2 3 4 5 43% 6 7 8 9 10 23% 11 12 13 14 15 14% 16 17 18 19 20 6% Franklin India Ultra Short Bond Fund -Super Inst Plan Direct - Growth 8,641,451 22 23 6,461,213 3% Franklin India Ultra Short Bond Fund -Super Inst Plan Direct - Growth 8,641,451 199,205,310 15.9% MOF Cash @ Kotak (Pnote) 0.0% MOF Cash @ Kotak (PIFL) 3,090,872 0.2% MOF Cash @ MCB- Accruals -20,240,294 -1.6% INR Gross Cost (952,125,090) (3,433,931) -0.3% Total Market Value Equity 1,067,143,075 164,114,426 16% Total Market Value Cash & Est. Net Accruals 182,055,888 USD $ Total Net Market Value Portfolio 1,249,198,964 19,467,237 Latest INR/USD 64.1693 Capital Subscription (Redemption) 1,052,100,016 16,103,300 Cumm. Gain/Loss USD 197,098,947 3,363,937 21% Monthly INR Value Chg. 0.09 Cumm. INR/USD affect -5.8% Monthly INR % Chg. 0.1% YTD INR/USD affect 5.6% INR % GICS Sectors Est. Net Return for Aug 2017 (est.) -3.31% -3.2% Consumer Discretionary (8) 35% Materials (Consumer) (5) 23% MOF, net est. 2017 YTD 15.9% 10.3% Financials (3) 13% S&P BSE 500 TR, in USD, YTD 27.6% Industrials (2) 9% Gross final till prev month (July) IT (2) 5% MOF, net est. since March 10 2014 inception 62% 75% S&P BSE 500 TR, gross in USD (since March 10 2014) 69% Mid Cap (13) 58% Small Cap (2) 4% S&P BSE 500, INR since inception 75% Large Cap % (5) 23% Down stocks? 7 Avg. wt. mcap 932 P/E 38 Annual Return vs. Benchmark MOF S&P BSE 500 Spread P/E (ex- PVR, Wonderla, ENIL) 19 Inception to 2017 YTD 93% 51% 43% 2017 YTD 16% 28% -12% 2016 2% 3% 0% 2015 5% -4% 9% 2014 27% 30% -2% 2013 10% -2% 12% 2012 29% 27% 2% 2011 -14% -26% 12%
- 10. 10 # of companies Total MV ($B) Avg MV ($B) Small (up to $1b) 3970 273 0.07 Midcap (>$1b <=$5b) 240 525 2 Largecap (>$5b) 71 1064 15