For August 2022, the fund generated 0.6% Gross returns* vs 3.5% by
We would like to briefly share what our fund is about and how we are
building the portfolio.
Tata Equity Plus Absolute Returns (under CAT III AIF) adopts a ‘Dual’
Portfolio strategy to make the best use of investors’ capital.
|Inception Date||16th March 2020|
CAT III AIF
Portfolio Exposure (Net Equity Exposure)
Gross Return* 1 Month
Gross Return* 6 Months
Gross Return 1 Year
Since Inception (CAGR)
1. Core Portfolio: allocations are made to Equities (multi-cap) and
Fixed Income/cash equivalents. The allocation between Equities and
Fixed Income is dynamic and will depend on market outlook,
available opportunities, and risk reward associated with each
2. Derivatives Portfolio: To generate consistent incomes and cash
flows, long and short trades are taken to benefit from short-term
trading opportunities. The fund primarily takes positions in stock
derivatives and can use index positions as well. Additionally, the
derivatives portfolio is used to hedge some of the existing positions
in the Core portfolio and create hedges at the overall fund level to
minimize the downside from market fallsThe fund is strongly focused on risk management and downside
minimization (using both capital allocation and derivative strategies)
while capturing a decent part of the market upside. The fund takes
lesser risks than conventional equity offerings and aims for absolute
returns with minimal drawdowns and volatility (visible in the riskreturns table below).
India outperformed. Indian financial markets – equities, bonds, and currency outperformed
strongly in August. Enhanced global risks and deteriorating macro headlines (worsening
economic slowdown and tighter for longer monetary policy) bore their weight on global
financial markets with a fall in global currencies relative to USD, and a decline in many
developed economies’ equity markets. DXY rose by ~2% during August while USD-INR rose by
mere ~75bps helped by foreign flows and possible RBI support. The most noticeable deviation
however, was seen in the bond markets where global 10 Yr government bond yields rose
anywhere from 60 bps to 110bps, while Indian Govt 10 Year bond yield saw marginal declines.
While too early to conclude, our call on the attractiveness of Indian Government bonds has so
far been helpful. The factors that have aided this outperformance of government bonds are a)
Limited fiscal deficit trends (in fact July was in surplus) given strong tax collections (GST partly
aided by higher price levels overall) and reduced government expenditure (flattish growth
trends), and b) Speculation of India’s inclusion to the JPMorgan Emerging Markets Bond Index as
sanctions against Russia opened the door. Active investors are now taking a relook due to
concentration risk and higher yields, especially after Russia’s exit. India’s bond market is one of
the largest in the emerging market pack with market size of around $1 trillion.
There were a few negatives for India too. June quarter GDP registered 13.5% YoY growth (about
200 bps below estimates). Government expenditure was dismal with just 1% YoY. The sharp
uptick of around 26.7% in nominal GDP growth indicates an 11.6% deflator (a better indicator of
the real inflationary and pricing trend in India). While slower economic growth is bonds positive,
but we cannot ignore the possibility of yields going up slightly in FY23 as RBI increases bond
Risk Return Ratios
Fund CRISIL ESS$ Nifty 50
(based on monthly gross returns*
since fund inception)
Absolute returns 77% 39% 85%
of which alpha/fixed income returns 56% 9% 0%
CAGR returns 26% 14% 28%
1 year returns 13.0% 5.0% 3.7%
FY22 23.3% 10.6% 18.9%
FY21 40.7% 27.3% 70.9%
Avg. monthly return when Nifty 50 was up 2.6% 2.2% 5.3%
Performance from the Nifty’s peak 8.3% 2.0% -3.9%
Annualized standard deviation (volatility) 5.9% 6.6% 18.5%
Volatility relative to Nifty 50 0.32 0.36 1
Beta relative to Nifty 50 0.27 0.35 1
No. of negative months 4 8 11
Avg. monthly return when Nifty 50 was down 0.9% -0.8% -3.1%
Sharpe 3.4 1.3 1.2Data as on 30th August 2022. Neither NIFTY 50, nor $
CRISIL ESS (CRISIL Equity Savings Index) is the benchmark for the fund. The attempt here is to
map the riskiness and performance of the fund on relative basis.
^Alpha calculated is based on Net equity exposure = (total long positions – total short positions)/AUM Alpha= Fund return—25% of Nifty return
In a world grappling with an economic and energy crisis, India looks pretty (near self-sufficiency
in energy, no meaningful supply-side shortages, no meaningful interest rates sensitivity to end
market demand, etc.). While this improves the relative outlook and potential flow diversion to
India, it doesn’t improve India’s outlook in absolute terms. There is less certainty on our
exports/IT services growth, less certainty on sustained strength in end markets like realty, and
more risk that RBI will also be restrictive for longer. With recent strong outperformance
(relative to the rest of the world economies) in both bond and equity markets and more
expensive valuation, we feel somewhat less optimistic about our financial markets’
performance. As such incrementally, we will look to enhance exposure to less rate-sensitive
fixed income and further reduce our net equity exposure by increasing short bets.
Our long-short portfolio should capture some of these macro-driven headlines and problems as
well as their impact on the financial markets
supply, banks reduce purchases as system loan growth picks up, and most importantly, RBI’s
policy will reflect a hawkish DM central bank.Globally, things went worse for financial markets. Central bankers became increasingly
concerned over inflation. In his speech by Fed chair, Jerome Powell stated “Restoring price
stability will likely require maintaining a restrictive policy stance for some time. The historical
record cautions strongly against prematurely loosening policy.” He subsequently warned the
American people of coming economic pain from sharply higher interest rates. Growing rhetoric
on taming inflationary pressures by Central bankers of developed economies indicate that
recession is not inevitable, it’s a policy choice. Policy decisions may consciously target a reduced
level of demand/economic activity to match reduced supply to bring down prices. Hopes of
investors that Central banks will be able to achieve a “soft landing” i.e. a slowdown in growth
that curbs inflation without causing a damaging recession has thus been torpedoed.As we write this note, the financial markets globally are still adjusting to this new reality. There
is considerable pressure in both bond and equity markets.
Apart from the monetary policy stance, the headlines on other important economic and
geopolitical fronts were majorly on the negative side. Europe is bearing the highest impact of
the energy shock. There were multiple factory shutdown announcements. Seeing a massive
increase in electricity bills, even normal citizens and small businesses are sending out SOSs.
The energy shock has in turn will proliferate into a food problem. The energy-intensive fertilizer
production has been impacted. Worse still, a large part of the northern hemisphere is facing
severe drought. It’s early headlines for the US, but Europe’s drought seems to be the worst in
nearly 500 years. Several famous European rivers have run dry. Horn of Africa (Kenya, Somalia,
and Ethiopia) is facing its worst drought in nearly 50 years which exposes ~20 million people to
the risk of starvation.
China seems to be in a deeper problem. The economy has been sagging amid the impact of
renewed local lockdowns, fears of a global slowdown impacting its exports (30% of GDP), and
persistent housing sectors meltdown since the Ever Grande crisis. It has considerable debt
problems with private debt (household and corporate) at over 200% of GDP. Together with
government debt, the total would be around 280% of GDP. In the country where
hydroelectricity is a major source (18% of total electricity generation), the worst drought on the
Yangtze since the 1960s has resulted in hydroelectricity generation falling by 51% causing a
severe power shortage. Beyond the immediate problems, China is facing structural (and
potentially irreversible) problems with demographics and high debt which will likely unfold into
sustained weak growth.
On the geopolitical side, things aren’t good either. China is angered that the US approved a $1.1
billion arms deal with Taiwan. While this can distract attention and resources towards gearing
up defense forces, the need of the hour is greater global economic and policy cooperation to
deal with the energy, food, and economic crises.
On the equities side, we added some positions in existing companies where the business
traction was stronger. We didn’t add any new names this month. Several of our positions are
hitting all-time highs, and we are very satisfied with the performance of our long portfolio (cash
equities) which has been consistently outperforming NIFTY50 on an equal weightage basis. Our
net short derivatives portfolio didn’t do so well this month. We saw many stock prices deviating
from the fundamentals. This kind of stock pattern emerges when the market sees opposing
forces of newsflow/sentiment. We expect the coming months to fare better for alpha extraction
from our equity long-short strategy.
On the fixed income side, we continued to use the attractive yield environment and deployed
funds to higher-yielding bonds (mostly Government bonds). We expect the fixed income
portfolio to perform well this financial year and enhance our returns. Additionally, we have also
taken the taxation of these instruments into account while making these investment choices.
We are trying to optimize risk, returns, liquidity, and taxation which should translate to a
healthy post-tax outcome for our investors with low volatility
Disclaimer: Investors should carefully read the Private Placement Memorandum and understand the risks before investing in the Tata Equity Plus Absolute Returns Fund. Notwithstanding any language to the contrary, nothing contained in this document constitutes or is intended to
constitute an offer, incentive, promise or contract of any kind. These materials are for informational purposes only and are not intended to be, nor should they be construed as, an offer to sell or the solicitation of an offer to purchase securities of Tata Asset Management Pvt Limited or any entity or other vehicle of investment managed by Tata Asset Management or its affiliates. Offers to sell or solicitations for offers to purchase Fund securities will only be made by means of a confidential private placement memorandum and in
in accordance with applicable securities laws and will be subject to the completion of an underwriting agreement and related documentation. This presentation contains confidential information and is being delivered to a limited number of sophisticated potential investors. Tata Asset Management, its affiliates / sponsors / employees, directors will not be liable for any loss, damage, liability whatsoever
for any direct or indirect loss resulting from the use or access to any information that may be viewed from time to time in this publication
time. The recipients of the information contained in this document must pay due attention and caution and read the private placement memorandum.
(including, if necessary, obtaining the advice of tax / legal / accounting / financial / other professionals) before making any decisions,
act or fail to act, based on the information contained herein. All the Information mentioned above are sourced from tata alternative investments funds only.
Source: TATA Alternative Investment Funds.
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