The journey so far…
We launched Solitaire in August 2019 with the promise of building a high-quality, value-driven portfolio that provides moderate and steady risk-adjusted returns with minimum volatility.
Global equity markets have witnessed one of the most tumultuous years ever. Nobody, including us, was protected in the steep crash of March 2020. However, this was an opportunity to prove that our model delivered on the low volatility promise. Our returns, though in the red, were showing a significant alpha over benchmarks. This was a positive sign and highlighted the merits of our risk management metrics. We knew we were doing something right.
We also leveraged this opportunity to scale up portfolios and abide by the age-old wisdom of “buying the dip”. A good fund manager is a ‘creation’ of good investors. Luckily, our investors showed conviction in the portfolio, our philosophy, and understood the importance of investing during periods of market volatility.
The result? We managed to rise from the lows of March beating benchmarks. On our 1-year mark, we are showing positive performance.
Solitaire in the current context/ Is it the right time to enter Solitaire?
Our current set of investors understood the virtue of our strategy. A common concern among newer investors is whether this is the right time to enter markets. Equity markets have rallied substantially, and many investors feel that they missed the investment bus. At the same time, they recognise the risks of waiting longer to enter markets. Can Solitaire solve this catch-22 situation?
Away from benchmark investing
Most investors judge the performance of equity markets by looking at the direction of common indices like the Nifty 50 and Nifty 500. One of Solitaire’s core strategies is to invest away from the benchmark. We showed conviction by consciously taking zero exposure to banking, a sector that constitutes 30-40% of most non-sectoral indices and funds. We are willing to take such tough decisions for the long-term interests of our investors.
For this reason, our fund has also proven to be a great diversification tool for existing investors in equity markets. Most investors already hold position in mutual funds, other PMS houses, and direct portfolios. Almost all of these investments have significant banking exposure. Investing in Solitaire avoids duplicating their already overweight exposure to this sector.
Gradual deployment of funds
We are in no hurry to deploy funds in a portfolio. We stagger our deployment over time and pace it based on the opportunities we see available. In doing so, we lift the burden of timing the market away from an investor and take it into our own hands.
We do not follow a model portfolio approach. While we have identified a basket of stocks that meet our investment criteria, we invest in a stock only once it meets our valuation parameters. For example, we invested in stock X at Rs. 1,300 in September 2019. By Jan 2020, the stock had rallied to 2000 and was outside our buying range. Thus, we refrained from immediately buying stock X for new investors. Whenever it returned to reasonable valuations, we would consider adding it into portfolios. This ensures that our investors get the best bet and value, irrespective of the time they enter markets.
Buy and hold strategy
Timing the market and catching the bottom is extremely imperative for short term traders and those looking to make a quick buck. Solitaire is a long-term buy and hold strategy. Once we form conviction over a stock, we buy it for the long term and closely monitor it. A premature exit is warranted only in case there is a material long term change to the business.
Taking these factors into account, we believe it is definitely an opportune time to enter Solitaire. Solitaire is designed for patient long-term investors seeking wealth creation. The Solitaire model brings the invaluable alpha of peace of mind to the table.
The COVID induced market crash temporarily shook our portfolios. We do not see any material long-term impact to our portfolio companies or businesses. Our portfolio companies are built to weather turbulent times and have the financial resilience to do so. We are also researching and understanding what the new normal means for certain sectors and business models. In the current context, we are also identifying new businesses of the future.
Setting fresh expectations
Good fund managers set fair and realistic expectations for their investors. We realise that the situation today is very different from when we had begun our journey, a year back. India was already reporting low GDP growth before the pandemic and we are currently reporting negative GDP growth numbers. The current situation will take a year or more to turnaround.
The interim period between now and the turnaround presents a great opportunity for investors. This is the time to buy and selectively scale up in quality stocks which were otherwise trading at higher valuations. Sentiment will throw up various opportunities in the next couple of years. It is our job to capture all this for our investors.
We reiterate what we have said in the past. 2020 and 2021 will be the years to build robust portfolios that will reward investors in the future. These are the years to sow the seeds, not reap the fruit.