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In this edition of ETMarkets PMS Talk, Sreeram Ramdas, Vice President at Green Portfolio, breaks down what powered the fund’s performance—from a standout diesel engine manufacturer to a strategic allocation in Embassy REIT.
He also explains why the fund avoids PSUs, maintains a long-term lens for value discovery, and sits on cash when valuations run high.
With a distinct strategy blending dividend income and capital appreciation, the fund is now betting big on manufacturing-led growth in FY26. Edited Excerpts –
Q) Please take us through the performance of the fund for FY25?
A) We did tremendously well last year. In the first 9 months of FY25, the portfolio net returns were precisely 25%.
Post that, thanks to the tariff war and a sea of uncertainty, our returns diminished slightly.
All in all, we closed FY25 at 17.3% net returns after fees. These performance numbers only account for the capital appreciation and don’t include the dividend income.
Most of the returns were driven by a company that manufactures diesel engines for tractors, followed by returns from a small allocation we had to Embassy REIT. On the flipside, our allocation towards textiles and chemical players weighed down the returns.
Q) How much wealth would one have made if they invested in the fund on 31st March 2024?
A) If someone had invested INR 1 crore, they would have made a net gain of 17l. However, we don’t encourage a short-term investing mentality. For all I know, the performance could have gone south in 1 year.
We believe 1-year returns are a matter of luck rather than predicated on the skill to analyse future fundamentals.
For a fundamental thesis to play out and the stock prices to reflect that fundamental performance rightly, it takes a minimum of 2.5 years.
Q) What is the core investment philosophy behind the Green Portfolio Dividend Yield Fund, and how does it differentiate itself from other dividend-focused funds?
A) Most importantly, we keep zero exposure to PSU. The dividend yield chaired by PSU’s is usually north of 4%, and yet we don’t touch this segment.
Even during the PSU rally in 2023, we were averse to investing in PSU as we prefer private players, given their intention to report profits above all else.
Secondly, we invest in companies that have a dividend yield greater than 3% while having a future growth outlook of greater than 20%. – Majorly, dividend-oriented funds are focused on investing in the large-cap space, while we focus on the small and mid-cap space, where the opportunities are niche.
Q) How does the fund balance the dual objective of generating dividend income and capital appreciation?
A) We get asked this question a lot. It’s usually the large conglomerates with infallibly stable cash flows that declare dividends to their shareholders.
Our fund philosophy revolves around finding companies with a 3%+ dividend yield while they are moderately spending on capex, have low debt, and have a sustainable business model, all the while being in the small and mid-cap space.
We aren’t just focused on investing in high dividend-yielding stocks; if that were the case, we would have had a 100% allocation towards PSU. We are focused on capital appreciation along with dividend income for the shareholders.
Q) What criteria are used to select high dividend-yielding stocks for the portfolio?
A) There are a host of variables we consider while investing. The most important of them being corporate governance – no major related party transactions, management has sufficient experience and interest in the business, absence of past accounting malpractices, etc.
Next, the business model should be sustainable, and the company should have a competitive edge – this need not be in tech or capacity – it can include longstanding purchase agreements with the buyers, strong distribution channels that can’t be easily replicated, or difficult-to-obtain licenses.
Fundamental growth outlook based on our research should be upwards of 20% CAGR – revenue and profits. All these factors are beyond the fact that the company should be a dividend-paying paying.
Q) Why are the top 5 stocks allocated 10% each in the model portfolio, and what role do they play in the overall strategy?
A) There’s a 10% allocation in the model portfolio to Shree Digvijay Cements and Bhansali Engineering. Expanding on Shree Digvijay, we believe the new capex of INR 250 crore for the cement and clinker plant will improve the business prospects once the plants are up and running.
Having an allocation towards commodities, auto component players, textiles, and a small allocation towards banking keeps our portfolio diversified across sectors while being invested in companies with high growth prospects.
Q) Given the portfolio’s relatively high standard deviation (6.67), how is risk being managed, especially in volatile market conditions?
A) The standard deviation is slightly higher than the BSE 500 benchmark. We are frankly not focused on managing the impact of daily price action on the portfolio – if that were the case, it would be difficult for us to stay focused on the company fundamentals.
We are obsessed with how the company is performing/will perform rather than the daily price action. Given that we are entering at the right valuations, the fundamental performance should reflect on the respective stock prices in a matter of 2.5 – 3 years.
With that being said, where the investment opportunities are scarce, we sit on cash. In fact during September 2024, we were sitting on 54% cash as the valuations were stretched and mostly uninvestable.
Q) We are seeing some bit of volatility amid the trade war as well as geopolitical concerns. What is your take on markets?
A) FY26 will be a robust year for our portfolio. Beyond the India-Pakistan and US tariff uncertainty, manufacturing firms we speak to are doing well. Many of the companies we speak to are operating at 80% capacity utilisation.
The FTA with the UK after decades of negotiation, the soon-to-materialise trade agreements with the US and EU, and the export demand switch from China are some of the factors that will drive the earnings and subsequently our portfolio returns. All in all, we are looking beyond these short-term geopolitical situations.
Q) Which sectors are looking attractive for FY26?
A) We are inclined towards auto component players, chemicals, and textiles in the dividend yield fund. There’s a small allocation towards REIT in order to enhance the dividend yield in the overall portfolio.
In summary, our major allocation is towards manufacturing. Given the trade tensions and simultaneous trade negotiations, the export market will open up drastically for manufacturers. The weightage on banking and IT has always been low for us.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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