Ampersand Growth Opportunities Fund Scheme – 1

Fund Snapshot

AIF CAT-III Subcategorization

Ampersand Portfolio: Mostly growth, but also value

Growth mix: Over 60% stocks could deliver >20% profit growth

• Cash=10.0%
• <20% Growth = 29.5%
• 20%-30% Growth = 19.0%
• 30%-40% Growth = 16.9%
• 30%-40% Growth = 16.9%
• >50% Growth = 15.5%

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Investment Philosophy

They  emphasize that wealth creation in the equity market hinges on timing business cycles and identifying companies with strong capital allocation skills. The investment objectives include consistently outperforming the BSE 500 benchmark while minimizing portfolio volatility and downside risks. They achieve these goals by targeting sectors poised for profit up-cycles, focusing on companies with competitive advantages, assessing valuation potential, and maintaining a concentrated portfolio backed by thorough research.

Stocks and Risk metrics

Top 10 Holdings

Portfolio Metrics

Valuation

Risk

Portfolio balanced for Liquidity & Risk adjusted return

• Large Cap – 41.0%
• Mid Cap – 21.9%
• Small Cap – 27.1%
• Cash – 10%

Sectoral Weights: Portfolio vs Benchmark Index

• Consumer Discretionary – 16.7%
• Financial Services – 24.1%
• Real Estate – 2.5%
• Consumer Staples – 5.2%
• Healthcare – 10.6%
• Communication Services – 0%
• Industrials – 24%
• Information Technology – 9.4%
• Basic Materials – 7.6%

Investment Outlook: Banking on Macro recovery

• Combination of personal tax cuts and interest rate cuts likely to revive economy and boost market sentiment soon
• Valuations at median levels now
• Large cap index NIFTY trades at around 19x FY27e and is likely to register 13% profit growth annually over FY25-27E compared to around 6% growth in FY25. Small and mid-caps are now at 22x-25x respectively with Profit growth outlook of 15%-18%
• Earnings recovery and reasonable valuation following recent correction is a compelling reason for recovery from here on
• Key Risks: USA govt tariff hikes further, derailing global economy

AIF Industry in India

• Alternative Investment Fund (AIF Cat III) categorized under SEBI (Alternative Investment Funds) Regulations, 2012 by the Securities and Exchange Board of India.
• AIFs employ diverse and complex trading strategies. Typically, Investors would be sophisticated and high-net-worth individuals
• AIF Cat III had Funds under management of over/near Rs 1,10,000 cr in September 2024.
• Around 130 different entities manage 249 different schemes. Of the funds managed in AIF Cat III, around 80% were through long-only schemes

AIF vs PMS

• Over the last 5 years, AIF Cat III has registered ~30% annual growth, compared to 17% for PMS (Portfolio Management Services). AIF Cat III is 1/7th the size of PMS industry
• Faster growth of Cat 3 AIFs can be attributed to the following benefits:
  • AIF-Cat III is unitized akin to MFs, so offer smoother fund management practices, including allotment, tracking and execution
  • Tax-free in the hands of investors, thereby removes the burden of tax calculations
  • Involves higher in-depth compliance
  • Promoters of the fund are required to deploy higher capital compared to PMS
  • Offers increased transparency and security to investors
  • Possibility of complex strategies, with a broader range of risk-reward options, leading to prospect of superior performance

Investment Strategy: Construct the Right portfolio

To deliver superior returns driven by, Right Stocks at the Right Time and the Right Size

• Consistent Outperformance: Deliver better than Benchmark Index returns every year
• Right Stock: Scores high on 1) Management Quality, 2) Market Attractiveness, and 3) Business Strategy
• Right Time: Sweet spot of 1) Business Cycle, 2) Valuations, and 3) Holding tenure
• Right Size: 1) Maximize gains through optimum allocation of weights, 2) Minimise Risk through diversification of holdings

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Ampersand Fund has consistently outperformed

• Ampersand manages a multi-cap scheme, and needs to be recognized assuch
• The fund has outperformed over time periods and major market indices, including benchmark (BSE 500)
• Since inception in Sept 2017, the fund has delivered 21.2% CAGR, net of fees

Ampersand in Top quartile of NSE-AIF Benchmark

• NSE is benchmarking the performance of III AIFs, in line with SEBI directive
• As per the latest NSE benchmark report ending Sept 2024, AGOFS-1 is in the top quartile for the last 1 year, 2-years and 3-years.
• AGOFS-1 performance is well above median returns reported across III AIF schemes every year since Sep 2017 (Fund Inception)

Target to sustain eminent status

• Best funds outperform benchmark by around 5% annually
• Consistent outperformance ensures top quartile position outliers typically don’t sustain, even ifreturns exceed benchmark by 10-15% in any year
• The fund aims to retain consistency, and thereby sustain top quartile status

Right Stock: Winner takes it All

• Over the last decade, around 100 stocks have delivered more than 20% annualreturn and about 25 stocks have delivered over 35% return in the universe of top 200 stocks
• We look for the following key attributes to identify winners:
  • High-quality management with track record of delivering superior growth and managing macro risks, while ensuring high standards of corporate governance and sustainability
  • Sectors with significant business potential amidst healthy competition, leading to profitable growth
  • Business strategy that leads to expansion of (1) Market share, and (2) Profit Margin/ ROCE

Right Time: A Scientific Art

• Sweet spot is a function of timing Entry and Exit in stocks
• Business cycles are evaluated through constant monitoring of industry dynamics such as competitive landscape, pricing scenario, etc.
• Valuations are tracked to assess mispricing of stocks, and potential risk-adjusted returns
• Holding period ideally should be equal to a business cycle, but tempered with market conditions

Right Size: Maximize gains with Minimal risk

• Our portfolio construct is guided by the following principles:
• Maximize gains through optimum allocation of weights
  • Allocation based on growth outlook, balanced by risks related to business volatility and stock liquidity
  • We avoid micro caps due to low liquidity and high impact cost
• Minimise risks through diversification of holdings
  • Notwithstanding preferred sectors/themes driving some skewness and concentration in the portfolio diversification of holdings, key to risks associated with external environment

Portfolio construct practices

We follow well-defined steps to construct and manage our portfolio

Step 1: Identify sectors on the cusp of a multi-year up cycle, preferable driven by macro themes

Step 2: Focus on companies with improving competitive advantage Step 2 and long-term potential, supported by a proven track record

Step 3: Assess valuation re-rating potential, thereby offering favourable outcomes from a risk-reward perspective

Step 4: Mitigate downside risks that could arise from liquidity, events, and execution

Preferred themes

• Premiumization: Every $1 trillion add-on to the Indian economy will lead to a faster rise in wealthy individuals. This will drive premiumization of products ranging from cars to hotels, and ergo a strong, durable investment theme
• Energy Transition: India is trying to become self-reliant in energy and work towards reduction of carbon footprint. Key beneficiaries are likely to be consumers and manufacturers of renewable energy equipment
• New Age Technologies: The US is gaining from new age technologies, including AI, quantum computing and mRNA. India’s Engineering research and design companies (ER&D), as well as Contract research, Development and Manufacturing (CDMO), also stand to gain given its large pool of cheaper engineering talent compared to competing countries
• Import Substitution: Incremental Capex and growth in segments such as Defence and Electronics led by Indian Government’s push/incentives towards Indigenization, along with global thrust on China+1

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Indian Economy Resilient (GDP %)

• India’s GDP set to sustain 6% plus growth, and outpace most leading economies
• Robust banking system and prudent fiscal policies, driving stronger growth
• Weaknessin externalsector remains key deterrent

Growing Affordability to boost Consumption

• Supply shock post-Covid and regulatory changes led to high inflation and unaffordability
• With remaining benign over past few years, volume growth likely to revive- green shoots already visible in rural areas
• Urban consumption revival imminent, aided by tax cuts and better affordability

Credit quality improvement, key macro-enabler

• Indian Banks have seen sharp reduction in bad debt, thanks to new regulations such as IBC
• Low credit cost and adequate capital are helping domestic banks to effectively finance India’s growth. and de-link from external risks
• India’s interest rate premium relative to US etc. have declined substantially, thereby boosting comparative advantage 14.7% 12.7% 11.4% 10.4% 8.8%, 7.2%, 5.2%, 3.3% 2.5% 2.3% 2.3% 2.4%

Premiumisation : High quality growth theme

• Every $1 trillion add-on to Indian economy will lead to faster rise in wealthy individuals
• Passenger traffic (both Rail/Road), Jewelry and Hotels, double digit growth is restricted to premium segments
• Presence of high-quality companies in premium consumption category make it a great investment category despite rich valuations

Invest in growth

• Over the next 3 years, earnings will be a major driver of stock performance, as further re-rating Prospects seem limited
• Market cap agnostic in choosing stocks, as high-growth stories with reasonable valuations are available only in select pockets

Why Ampersand?

• Ampersand is a cooperative team effort that stands for flexibility and boundless possibilities.
• Excellent equity research analysts with more than 40 years of combined experience
• a track record of successfully managing funds since its founding in September 2017; according to the CRISIL study, it ranks in the top quartile among peers.
• A substantial sponsor contribution reduces agency risk and demonstrates commitment.
• Goodwill and solid connections within the business and investment community

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