In the highly concentrated long-term portfolio, almost all stocks have compounded their share prices at 15-30% annually demonstrating that stock selection contributed significantly to portfolio returns, the PMS fund said.
With an intended average holding period of stocks of 8-10 years or longer, Team Mukherjea has a coverage universe of around 25 stocks which have historically delivered a high degree of consistency in ROCE and revenue growth rates.
By growing at a CAGR of 18.64%, the portfolio has outperformed Nifty Total Returns Index (TRI) which has given a return of 16% in the last four years.
Over half of the gains have come from 5 stocks -, , , and .
Mukherjea, who manages nearly Rs 13,000 crore of investor wealth, said returns in his portfolio have been driven not just by stock selection but also position sizing and duration of holding.
Bajaj Finance and Asian Paints are among the two stocks with biggest allocations in the portfolio.
In the low churn portfolio, most stocks have been in the portfolio for at least four years.
Even though share price returns of most of his stocks are similar to each other over longer time horizons, there are several instances of significantly divergent returns of stocks over the short term – say a six-month period.
"The stock prices of even the highest quality franchises tend to go through short term gyrations as a result of a prevailing short term narrative (eg. the spring 2020 narrative that Covid-19 will damage the Bajaj Finance franchise) or extrapolation of short-term weakness in business (eg. the market’s reaction to the Covid-19 drug Molnupiravir becoming less relevant for Divis Lab)," Mukherjea said.
As a result, he said there has been a wide dissonance amongst their portfolio holdings over specific 6-month periods, even though over a longer period of four years the returns are clustered in a tight band.
Giving the example of Bajaj Finance, the fund manager said when the stock price almost halved between January 2020-April 2020 leading to a decline in its portfolio weight, his team rebalanced the portfolio by increasing the weight of the stock. "By December 2020 the stock had recovered nicely and delivered 128% returns with the overall portfolio benefiting immensely from the higher weight," said the author of investing bestsellers like 'Coffee Can Investing' and 'Diamonds in the Dust'.
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