Investment analysis and portfolio management

Eureka Investment Fund

Consists of the following fund managers:

1. Hinal Chheda B020
2. Ishita Gupta B024
3. Ankit Khowala B035
4. Simran Nathany B041
5. Neel Shah B053
6. Priyanka Sharma B054
 Broad investment philosophies adopted by Eureka

Qualitative approach
The team believes in investing in the organisation’s business model, its culture, employees,
management and the leadership team. Companies’ filings, managers’ records, strategies,
philosophies and relevant new reports will be looked at before investing in an industry.

Blended approach of Growth Investing and Value investing

Idea is to increase the investor’s capital by mostly investing in mid-cap and large-cap companies
whose earnings are expected to increase at above average rate compared to industry standards.
Company’s potential to expand and generate profits through capital appreciation will be assessed to
ensure that stock prices rise in future. Companies displaying good growth trends, high earnings
estimates, and strong return on shareholders’ money and increasing stock performance are
preferred for investments. Also, fundamental analysis will be done to invest in securities that appear
underpriced.

Alpha Generation Strategy

Strategic Asset Allocation approach

This involves dividing the fund sum among the various sectors. This shall be based on the view
considering the risk of a particular sector and evaluating it on the basis of its expected returns.
The mix of sectors may remain constant or subject to change based on the market sentiments. The
mix of sectors shall be heavily influenced by the expectations of the Fund managers about the most
probable outperformers.
Tactical Asset allocation approach
The Tactical asset allocation strategy refers to determining the mix of stocks among the selected
sectors. The weight of a stock in a particular sector may be adjusted to reflect the temporary
sentiments for that stock. For e.g. A stock position may be diluted before a poor earning expectation
and bought back eventually as it may be a good long term investment. Various strategies such as
factor exposure or factor timing may be used to enhance returns.

Stock Selection Strategy:

1.  Growth Stocks: Our selection will include, in particular, growth companies that can provide our
investors with a higher return. These firms typically have a higher return on capital than their cost of
capital. The Growth factor will be based on recent quarterly growth of the company as well as the
quality of the earnings. It will determine stocks with high growth at a reasonable price. Also keeping
a check on whether the earnings growth is consistent or cyclical. Comparison of ROCE of companies
in a given sector would be one of the primary screening criteria.

2.  Market Capitalization: The screening of the stocks would be based on mid and large capitalization
along with emerging blue chips with solid profit growth. Our screening process would also include
looking at return on equity and companies trading at attractive valuations. 

3.  Diversification Strategy: Diversification is an active strategy and a powerful source of alpha. It
works best when strategies have activity to capture price movements, whether this comes from
active management or from rebalancing. So, our portfolio will focus on diversification to balance
sectoral exposure and to have low correlation between investments. 

4.  Top-Down Approach: We will look for the factors, events prevailing in the market and try to
understand the opportunity that could be derived from it. A top-down investing style focus on asset
allocation of the entire portfolio. The strategy pays more attention to overall economic and political
conditions of a country which can affect the performance of a particular industry.  This management
helps in constructing a portfolio by matching a level of risk consistent with industry’s performance.
Hence, we analyse the top performing sectors in the market and invest accordingly, keeping in mind
to diversify the portfolio.

5. Company-specific Approach: We shall be understanding the business of the company in aspects of

growth drivers, revenue drivers, management capability and the future expansion plans. The
information for the same will be gathered from the annual reports, newspaper articles and other
sources. The companies shall also be valued using valuation multiples, CCM etc.

6. Other factors: We will also look for stocks with reasonable trading volumes, transparency (w.r.t.
press releases, quality disclosures, etc.) etc. adapting going concern parameter. Stocks will be
selected by comparing company PE with aggregate market PR or industry PE. 

Benchmark Used

The NIFTY Large Midcap 250 reflects the performance of a portfolio of 100 large cap and 150 mid cap
companies listed on NSE, represented through the NIFTY 100 and the NIFTY Midcap 150 index
respectively. Hence, it is an appropriate benchmark for the fund that shall predominantly invest in
equity securities large and mid-cap companies. The performance will be benchmarked to the Total
Returns Variant of the Index. 

Performance Explanation Formula

Metrics
Treynor A composite measure of portfolio performance (PR-RFR) / PR=portfolio return
Measure incorporating the risks produced by fluctuations in β RFR=risk-free rate
the stock market and the ones produced by β=beta
individual securities.
Sharpe Ratio Risk measure is taken as the standard deviation of (PR-RFR) / PR=portfolio return
the portfolio whereas in Treynor, only systematic SD RFR=risk-free rate
risk, β is considered. SD=standard
deviation
Jensen’s Alpha CAPM is used here to gauge excess return the PR-CAPM PR=Portfolio
Measure portfolio generates over its expected return. Return
CAPM=risk-free
rate + β(return of
market – risk-free
rate)
Information Information Coefficient, Breadth and Transfer (PR-BR) / PR=Portfolio return
Ratio Coefficient make up the Information Ratio. It TE for period
measures portfolio returns beyond the returns of a BR= Return on
benchmark, usually an index, compared to the benchmark fund
volatility of those returns. TE= S.D. between
portfolio and
benchmark returns
Value at Risk Quantifies the level of financial risk within a firm,
portfolio or position over a specific time frame.