Athworth

India's Top AIF & PMS Investment Consultant

Complete Circle Steller Wealth PMS

About Company

Complete Circle offers personalized wealth management solutions tailored to your specific needs, backed by decades of combined team expertise. They see Complete Circle as a leader in simplifying equity-based specialized portfolio investment through PMS. They hope to change the Indian typical from one of the savers to one of the investors through high-quality solutions. Their goal is to become one of India’s most reputable PMS service providers.

Portfolio Construction

Concentrated portfolio

  • A portfolio on average comprises 20–25 stocks
  • The aim is to generate a 20%+ CAGR for the portfolio over a minimum holding period of 3+ years at any point in time 
  • Sector and market cap-agnostic investing approach with a bias towards under-researched and well-run small to mid-cap companies

Allocation flexibility

  • No hard cap on the contribution of the portfolio from any idea sector or market cap range, but prudence is to be maintained Weight per stock may range from 3% to 5% @cost; exceptional opportunities may get an allocation of 10% @cost
  • The decision to exit investments will solely be based on their business performance or their potential incremental IRR 
  • Will keep a portion of a portfolio in cash equivalents if valuations of existing holdings and watch list become exorbitant

Portfolio tracking

  • Track industry trends of portfolio companies like changes in a competitive landscape, technology, regulations, supply chains, etc
  • Evaluate quarterly results of each company against own expectations & benchmark performance against that of competitors
  • Carry out detailed diligence in case the investment’s performance is not as per the initial investment hypothesis

Portfolio rebalancing

  • Exit an investment if either its valuations become absurdly expensive or if there is a structural challenge to its business fundamentals
  • Periodically rank portfolio companies based on valuations, earnings performance, expected future stock returns, and rebalance accordingly
  • Fresh or follow-investment in an idea only if it can deliver an attractive IRR over the next 3 years

Sources of Idea Generation

  • BSE corporate announcements
  • Press releases, investor presentations
  • M&A deal/Joint venture/Partnership agreements
  • Quarterly results – watch out for breakout post a big earnings surprise (PEAD)
  • Conference calls (Trendline, AlphaStreet, ResearchBytes, Company website IR section)
  • Global peer’s commentary and outlook
  • Management interviews
  • Screeners (Tijori Finance, Screener. in) – big capex, 52-week/all-time/post IPO new high
  • Equity research reports (Ambit, ICICI Securities, Spark Capital, IIFL, Nirmal Bang, Axis)
  • Annual reports, credit rating reports, DRHPs, QIP Offering Documents
  • Investor letters (Solidarity, SageOne, Equirus), Investing conclaves (TIA, IIC), and webinars
  • Fund managers’ top 5 holdings from the PMS Bazaar website
  • Bulk deals+block deals+insider buying (StockEdge), 52-week high volume list
  • Magazines/Newspapers/Industry-specific websites
  • Discussions with peers and colleagues; views of the leading analysts of individual sectors
  • Social media (Twitter, WhatsApp, Telegram) and online forums like ValuePickr, Multiple
 

Multi-Pronged Approach For Idea Generation

Track Key Company Metrics

  • Leaders in niche sectors with low competition
  • Low leverage & high ROCE
  • Revenue growth (operating leverage)

Track industry developments

  • Sectors undergoing supply-side consolidation
  • Regulatory changes
  • Emerging sectoral adoption trends

Track investment activities

  • PE/hedge funds/mutual funds
  • Respected individual investors
  • Insider buying

Track corporate events

  • Change in promoter/management
  • Demergers; block deals; merger arbitrage
  • Significant capex; product mix change
 

The Portfolio Risk Approach

You will always take one of these four risks when buying a stock:

  1. Business Risk
  2. Management Risk (Intrinsic value of a business with fraudulent management is zero)
  3. Valuation Risk
  4. Industry Risk

There are only four things that can happen in investing:

1) Big Profit

2) Big Loss

3) Small Profit

4) Small Loss

If you can eliminate big losses, you shall do very well. There is no bigger mistake in investing than holding on to your losers for a long time. Going wrong occasionally is acceptable, but staying wrong is not.

 

What We Strive to Avoid in our Client Portfolios

  • Invest in commodity and cyclical businesses near the peak of their cycle
  • Invest in government-owned companies: Promoter’s key motivation is not wealth creation for shareholders
  • Invest in project-based businesses dealing with government tenders
  • Invest in melting ice cubes, i.e. “value traps”
  • Venture outside my circle of competence driven by the lure of quick short-term returns in bull markets
  • Invest in companies with bad accounting quality/corporate governance
  • Take a short-term view: Investing is a long-term game. The more time you give it, the higher the odds of success
 

Rigorous Diligence Process to Avoid Errors of Commission

Comprehensive Corporate Governance Checklist

  • Frequent changes in auditors’ Qualifications raised by auditors
  • Abnormal auditor fees; unaudited subs
  • Political affiliations, criminal proceedings, CBI/ED/IT raid, SEBI debarment, history of CXO level exits 
  • Excessive remuneration of KMP, blowing large sums on corporate office 
  • Equity dilution, promoter pledging 
  • History of Dividends & share Buybacks 
  • Loans from the promoter at high int. Rate 
  • Analysis of related party transaction(s) 
  • View of current and ex-employees
  • View of industry experts
  • View of reputed investors
  • Similar business as the listed entity run by a promoter in his private company
  • Evaluation of accounting quality Revenue recognition policy
  • High working capital, increasing accounts receivable/inventory days
  • Historical CFO/PAT ratio
  • Abnormally high margins versus peers in a commodity industry
  • Excessive write-offs of assets in the past
  • Capitalization of operating expenses High debt/equity ratio
  • Statutory payments default
  • High contingent liabilities
  • Off-balance sheet obligations

Sources of Opportunities

Variant Perception

  • A differentiated view on the short to medium-term trajectory of the business
  • Variant perception triggers:
    • Product mix change (margin expansion) • Operating leverage
    • Industry cycle shift
    • Regulatory change
    • Working capital improvement
    • Deleveraging
    • Improvement in asset turns
    • Corporate actions
      • Demergers
      • Reverse mergers
      • Promoter/management change
      • Divestiture of loss-making/non-core business

Long-term Structural Trends

  • Favorable industry structure+tailwinds
  • Consistency and predictability of cash flows
  • Long runway for growth (high visibility for many years ahead)
  • Value migration
  • Structural growth plays in India:
    • CDMO/CRAMS/EMS
    • Specialty chemicals with critical application
    • Affordable housing
    • FinTech
    • Branded discretionary consumption
    • Financialization of savings
    • Digital transformation
    • Cloud computing