PMS strategy: Navigating market cycles with precision

Authored by Anirudh Garg, Fund Managers at INVasset.

Portfolio Management Services (PMS) is a customized investment solution offered by professional portfolio managers to high-net-worth individuals (HNIs) and institutional investors. PMS managers invest client funds in a variety of asset classes, including equities, fixed income, and commodities, based on the client's individual investment goals and risk tolerance.

One PMS strategy that focuses on navigating market cycles is the INVasset AAID (Advance Algorithms for Investment Decisions) approach. This approach is based on the understanding that financial markets oscillate between two primary phases: Value-Conscious Runs and Quality-Conscious Runs.

1. Value-Conscious Runs:

- These phases are marked by rapid growth, surging liquidity, and escalating commodity prices.

- During these periods, the focus shifts towards value over quality, with government-led capital expenditures taking the forefront.

- Sectors such as Capital Expenditure, Industrials, Public Sector Undertakings (PSUs), and commercial banks tend to flourish, while Information Technology (IT), Pharmaceuticals, Fast-Moving Consumer Goods (FMCG), white goods, and retail banks may experience slower growth.

- Historical Cycles: 1987 to 1992, 2001 to 2007, and Since 2022

2. Quality-Conscious Runs:

- In these phases, sectors like IT, Pharmaceuticals, FMCG, white goods, and retail banks take the lead.

- Historical Cycles: 1993 to 2000, 2009 to 2020.

The investment strategies are made in accordance with these runs, optimizing asset allocation to effectively capitalize on the prevailing market conditions.

Investment Approaches:

1. Value Investing / Deep Discount Scale:

- The focus is on acquiring value when the entire market presents value.

- Particular emphasis is placed on market lows or periods of heightened uncertainty.

- This approach draws inspiration from Benjamin Graham's value investing philosophy.

2. Special Situation/Change-based Investing:

- The goal is to identify emerging market leaders driven by recent transformative changes.

- Action is taken when the market enters a new bull run.

- Current Status: Ongoing market phase.

3. Quality Investing:

- Investments are directed towards self-sustaining companies with strong fundamentals.

- The spotlight is on firms with high Return on Equity (ROE), Return on Capital Employed (ROCE), and market dominance.

- This approach is favoured during periods of elevated market valuations.

4. Pension Fund Investing:

- The strategy shifts focus towards cash and equivalents when market overvaluations are identified.

- This unique approach distinguishes PMS during bullish market conditions.

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.