The market correction in the last few months has hurt all portfolios in varying degrees. However, the character of the portfolio does to change with the market, unless the portfolio is constructed keeping short term performance with the benchmark as a primary objective. Mutual funds that are benchmarked and conscious of performance in the short term, have shifted their portfolios to largely mirror the index, which then gives rise to the question of why pay more fees when index funds or ETF’s comes at a very low cost.
Portfolios built with a longer horizon for the companies in the portfolios should not change with changes in market sentiments, which changes due to various factors that may or may not have a detrimental effect on the performance of businesses.
True that companies do undergo short term pains due to factors such as policies and regulations, geo political issues, political risk and other economic factors including domestic and global macros. Companies and businesses then tend to adjust to the new conditions and continue to grow as their management and businesses are inherently competitive.
The issue of a business going out of relevance due to disruptions or bad management should be the primary consideration for changes in a portfolio.
We have constructed your portfolios with a focus on long term outperformance, as we see businesses gaining traction going forward due to their inherent competitive strengths. Hence, the market volatility is not making us change our views on the companies in your portfolio. Yes, some companies are seeing temporary headwinds and guiding towards muted earnings but these companies are also using this overall sector weakness to consolidate their leadership position. This will enable them to grow faster in the future.
Other companies in your portfolio have shown a strong traction and are providing strong guidance, as their businesses are positioned towards high growth areas. The market sentiment has led to the market not recognising the potential of these companies, providing opportunity to investors to enter at relatively cheap valuations.
We have anticipated volatility due to various risks that we saw ahead and your portfolios are constructed accordingly, to ride out volatility and then grow.
Wish you all a Very Happy Diwali.