Abakkus Diversified Alpha Fund

Fund Snapshot

Investment philosophy

1. Alpha Generators

Abakkus Asset Managers are committed to generating alpha over the markets rather than simply aligning with benchmark indices. Their focus is on identifying companies where productivity is expected to grow faster than the market average. They seek out fundamentally underpriced stocks with reasonable growth expectations, particularly mid-cap companies with a scalable business model and the potential to become large-cap leaders.

2. Fundamental Driven

The investment decisions are rooted in bottom-up research with a strong emphasis on balance sheets. They believe that numbers speak louder than presentations and hype. At Abakkus, they prioritize earnings, as returns are ultimately driven by a company’s financial performance and fundamentals.

3. Happy to Be Contrarian

They embrace a contrarian approach, preferring to be the first, early, or only investors in an opportunity. Abakkus Asset Managers don’t chase momentum or follow the crowd. Instead, they remain open to opportunities across sectors, market caps, and business cycles, ensuring we capture value where others may overlook it.

4. Agile and Flexible

Every investment opportunity is evaluated on its merit. They are not constrained by a particular theme or style, allowing them to adapt to changing market conditions. The agility ensures they can seize opportunities wherever they arise, delivering value to their investors.

5. Patient Investors

They believe in buying and holding investments as if they are partners in the business. Patience is key to unlocking value, and they take a long-term view to allow the investments to mature and deliver sustainable returns.

6. Risk Reward Equation

At Abakkus, they ensure that expected returns always justify the risks and uncertainty involved. A good company may not always be a good stock, so they focus on the price they pay and the value derived. They ask themselves: What is in the price? This disciplined approach ensures a balance of risk and reward effectively.

Investment Approach

• Benchmark Agnostic portfolio of around 40 companies “Bottom Up” investing in companies with decent profitable growth
• Disciplined approach to investing across market caps and sectors
• Focus on a value-conscious style of investing
• Low churn long-term ideation-based approach to investing
• Endeavour to generate alpha over 3–5 years holding period
• Select IPO investments as an Anchor Investor \ QIB \ Pre IPO

Fund Characteristics

• Unique 40:30:20:10 approach to portfolio construction
• Capturing opportunities across market capitalization
• Lower volatility through large cap and larger mid-cap exposure
• Focus on alpha creation via exposure to mid, small & micro caps
• Risk discipline and management by way of position sizing
• Liquidity management as smaller capitalization companies have incrementally smaller weights

What To Expect

• Profitable Businesses
• Value Conscious Approach
• Alpha focus
• Diversification
• Value Unlocking
• Decent Earnings Growth
• Decent ROE
• Low Churn
• Investment rather than allocation
• Value paid commensurate to future profitability

AIF Positioning

Equity Market Outlook
Economic growth expected to accelerate, Valuations above 10-year average but reasonable. Indian economy relatively outperforming developed as well as other emerging markets

Portfolio Stance
Capturing opportunities across market capitalization

Approach
Value-conscious style of investing in companies having robust business models and earnings growth

Alpha Generation Approach
Investment rather than allocation-based approach across market caps

Themes we are Positive on
Financials, Domestic Growth & Consumption, Manufacturing, Capex, and Digital \ IT

Expected Market Earnings CAGR 
14-15% CAGR

Investment Framework

Abakkus follows the MEETS Framework, a comprehensive methodology for stock selection and portfolio management. MEETS stands for Management, Earnings, Events/Trends, Timing, and Structural factors, ensuring a thorough 360-degree evaluation of every investment opportunity.

M – Management

• Quality: Abakkus prioritizes companies with capable management teams and a proven track record.
• Capital Allocation: The firm focuses on efficient capital allocation, particularly in achieving fine Return on Equity (ROE).
• Capital Distribution: Abakkus favors companies that reward shareholders through dividends or buybacks.
• Error in Decision: The firm avoids companies with a history of business errors or governance mishaps.

E – Earnings

• Quality of Earnings vs Reported Numbers: Abakkus digs deeper to assess the true quality of a company’s earnings.
• Actual Earnings vs Expected: The firm compares actual earnings against market expectations.
• Cyclical vs Structural Earnings: Abakkus analyzes whether earnings are cyclical or structural in nature.
• Companies with Stable Profits: The firm prefers companies with consistent profits over the last four years, as measured by EV/EBITDA.

E – Events/Trends

• Stock Movement: Abakkus seeks stocks that can benefit from events or trends, independent of broader market movements.
• Events on the Horizon: The firm identifies upcoming events that could serve as catalysts for growth.
• Disruptive Trends/New Themes: Abakkus stays ahead by investing in emerging trends and disruptive innovations.

T – Timing

• Good Company is Not Enough: Abakkus believes a great company isn’t a good investment if the price isn’t right.
• Price Discounting: The firm assesses whether the stock price reflects its intrinsic value.
• Time Frame of Investment: Abakkus considers the optimal holding period for maximum returns.
• Mean Reversion: The firm looks for opportunities where valuations may revert to their historical mean.

S – Structural

• Size of the Opportunity: Abakkus evaluates the market potential and growth prospects of a company.
• Competitive Positioning/MOAT: The firm invests in companies with a sustainable competitive advantage (MOAT).
• Consistent Growth in Profits: Abakkus seeks companies with a proven track record of profit growth.

What They Do?

Small Cap

• Invest in new sectors and emerging themes
• Bank on entrepreneurship which is thriving in India
• Companies with unique positioning in their respective sector
• Small companies but in niche sectors
• Opportunistic exposure to events, special situations
• Under Researched \ Disbelief

Micro Cap

• Undiscovered companies with long term high growth potential
• Sound businesses that are priced significantly below our estimation
• Under penetrated sectors / industries having Macro tailwinds
• Invest in potential turnaround stories
• Companies with less awareness / research

Investment Process

Abakkus Asset Management employs a disciplined and systematic investment philosophy designed to deliver consistent, risk-adjusted returns for its clients. The firm’s proprietary 5D Investment Process—Discover, Delve, Develop, Detail, and Deliver—ensures that every investment decision is grounded in rigorous research, deep analysis, and a commitment to long-term value creation.

1. Discover

From a Universe of 6,000 Companies, ~1,500 Are Investable

Abakkus begins by scanning a vast universe of over 6,000 companies to identify a focused pool of approximately 1,500 investable opportunities. The firm’s discovery process leverages multiple sources to uncover potential leads:

• Annual Reports: The team conducts an in-depth review of company financials and performance.
• Analysts & Reports: Insights from industry experts and research are carefully evaluated.
• In-House Screeners: Proprietary tools are used to filter companies based on key metrics.
• Team Experience: The firm draws on the expertise of its seasoned investment team.
• Ecosystem: Abakkus engages with industry networks and stakeholders to identify opportunities.
• News Flow: The team stays updated with market trends and developments.

2. Delve

Deeper into ~350 Companies with the Help of the Investment Team Using the MEETS Framework

Once potential opportunities are identified, Abakkus dives deeper into approximately 350 companies using its MEETS Framework to evaluate their investment potential:

• Management Quality: The firm assesses the leadership team’s track record and vision.
• Earnings: Historical and projected earnings growth are analyzed.
• Events: Catalysts that could impact stock performance are identified.
• Timing: The team evaluates the right entry and exit points.
• Structural: The company’s long-term competitive positioning is thoroughly examined.

3. Develop

Macro and Micro Analysis on >100 Companies

At this stage, Abakkus narrows its focus to over 100 companies and conducts a thorough macro and micro analysis to validate their potential. This involves:

• Management Meetings: The team engages directly with company leadership.
• Competitive Advantage: The firm assesses the company’s edge in the market.
• **Portfolio Beta: Risk management strategies are applied to optimize the portfolio.
• Risk/Reward Equation: The firm evaluates the balance between potential returns and associated risks.
• Decision Making: Investment decisions are made with a focus on long-term value creation.

4. Detail

Idea Generation on ~75 Stocks

Abakkus further refines its selection to approximately 75 stocks, focusing on idea generation and portfolio construction. This stage includes:

• Liquidity: The firm ensures the stocks meet liquidity requirements.
• Sector Exposure: Sector allocations are carefully balanced.
• Portfolio Beta: Risk management strategies are applied to optimize the portfolio.
• Risk/Reward Equation: The firm evaluates the balance between potential returns and associated risks.
• Decision Making: Investment decisions are made with a focus on long-term value creation.

The firm also emphasizes buying stocks at the right price, either immediately or at a target price, and remains vigilant for triggers that may necessitate a change in stock price or data point.

5. Deliver

Portfolio Construction and Risk Monitoring of ~30 Stocks

In the final stage, Abakkus constructs a portfolio of approximately 30 stocks and implements ongoing risk monitoring to ensure optimal performance. This includes:

• News Flow: The team continuously monitors market and company-specific news.
• Monitoring: Portfolio performance is tracked in real-time.
• Quarterly Reviews: Regular reviews ensure alignment with investment goals.
• Sell Discipline: The firm adheres to a strict sell discipline to manage risk and lock in gains.

Avoid the four “C” s

Chase Momentum
We would let fundamentals drive our investment decision rather than price movements

Churn Unnecessarily
No trading. No needless churning of the portfolio

Copy & Mimic
We will not be influenced by ‘herd mentality’. All investments have to be necessarily worked internally

Credit Risk – Fractured Balance Sheet
We believe it is very difficult to rebuild a broken balance sheet and these stocks eventually turn into value traps and hence best avoided

Risk management

Company Risk
The best way to handle company risk is by knowing in-depth details what you own and why you own it. There is no substitute for this. Our uncompromised focus on balance sheet and numbers will help us in mitigating company risk

Valuation Risk
While there is no right or wrong valuation number, we are definitely wary of overpaying. We maintain strict discipline on this

Market Risk
We would be focusing more on the portfolio than trying the futile guess over where markets are headed. While we would be definitely monitoring the market, we believe the best way to handle market risk is by being patient.

Liquidity Risk
In mid and small cap investing liquidity can be a near-term risk, the portfolio is designed to take care of this, and we would urge investors to factor a 3–5-year time horizon

Concentration Risk
Endeavour to have adequately diversified portfolio across sectors and stocks

Why Abakkus

Experience

Backed by a well-qualified dedicated team of professionals that have cumulative experience of ~200 years

Performance

A well-established performance track record over 2 decades in public equity funds and across all market cycles

Commitment

Follow a start-up culture with high degree of commitment, urgency and passion

Positioning

Focused investment in Alpha plays beyond the large number of listed companies supported by non-consensus, in-house research and independent thoughts

Opportunistic

Greater flexibility in investing into new sectors, new themes which are backed by entrepreneur driven economy

Consistent

Investment team has delivered consistently across market cycles