This 9-month old asset management firm has outperformed Nifty by 26%, here’s where they invested | INTERVIEW

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Updated: Jun 24, 2020 1:24 PM

After the success of discount brokerage Zerodha, Nikhil Kamath is now helping to shape up an asset management company called True Beacon, along with the same management team as his previous venture.

"Going ahead, we expect the market momentum to continue in near term on back of changed sentiments and improved liquidity.True Beacon does not do any midcap, nor small cap. Their universe is Nifty 50 only.

After the success of discount brokerage Zerodha, Nikhil Kamath is now helping to shape up an asset management company called True Beacon, along with the same management team as his previous venture. True Beacon has consistently managed to beat the benchmark Nifty 50 index, even during the most volatile months in recent history, Nikhil Kamath, Co-founder and CIO, True Beacon and Zerodha, tells Kshitij Bhargava of Financial Express Online in an interview. While sharing their investment strategy, he also delves deeper into what stocks True Beacon funds have been investing in to outshine the benchmark. Here are the edited excerpts.

How is True beacon different from your traditional Asset Management Companies?
Typically Asset Management companies have not changed much in not just India but across the world over the last 10-20 years. If you put a hundred bucks into a traditional Asset Management Company or a private bank you end up paying one or two bucks to the distributor, you pay two more bucks to the fund manager annually and you have a carry component so you’re actually giving the fund manager only 96 bucks to begin with. So we wanted to change this and bring in a more client aligned model wherein we will not charge any upfront fees, we will not have any distributor. It’ll be a direct to client product only and we will not have any standing fees throughout the year. We will not have an exit load, we will not have a setup fee or fees of any kind. The only thing that true beacon charges as a company is 10% carry. So when you put in a hundred into True Beacon, Rs 100 comes into the fund vs Rs 96 elsewhere and if the hundred becomes Rs 110 at the end of the year, we take one as fee, and we do this with a high water mark level so if Rs 100 becomes Rs 110, we charge one. If it goes back down to Rs 105 and then it comes back up we don’t charge the second time around. 

So this being a new-age investment platform, what kind of transparency are you offering your clients?
In terms of transparency, which I think is our second bucket, which kind of distinguishes us – typically Asset Management products for HNI and ultra HNIs do not share what is happening with the fund on a daily basis. You get a report once in a month which says what your NAV is and you act or do not act based on that. So in true beacon we have used technology to build a dashboard of sorts wherein you can login at any point everyday and see what your actual money is doing what the NAV is and we also allow for you to do all the transactions you might need on the fund like adding capital or withdrawing capital online on this dashboard vs having to call your relationship manager and nudge him to take out. 

So the past two months have been very volatile in the market and you already said that 35% takes advantage of the volatility . So how has the performance been of True Beacon funds in the past few months been?
Right. So our target risk profile is to beat the benchmark which is the Nifty for us, which has typically done about 11- 12% a year for the last 10 or 20 years. We aim to beat this by 6-8% but in the last, say, 9 months we’re kind of over performing. We have a 26% Alpha with the Nifty. So volatility has worked well for us. So the fund is up about 16% whereas the Nifty is down about 10%.

How have the flows been? Have you been able to gather more customers in the past few months?
Yeah, we seem to be getting a lot of customers now especially since we’re approaching the one year mark, and I think just based on performance, if not the top performing fund in our category we’re definitely in the top two or three. So as word gets around we’re getting a lot of organic traffic in. I would say AUM is going by about 20% month on month and it’s early days for us because we’ve only been around 9 months, but I think a lot of people really appreciate the transparency and efficiency that we’re bringing in with this model.

True beacon has outperformed Nifty by 26%, can you shed some light on the strategy that has been followed?
So the long only bucket, the 65% that we have, has kind of overachieved what the Nifty has done by about 2-3 percentage points. But much of the Alpha has come in from the longshot of the derivative mathematics based strategies component because that is more focused on feeding of volatility and we’ve had a very volatile 2-3 months. So most of our gains have been centred in that bucket. 

What sectors or companies have you bet on?
We don’t do any midcap, we don’t do small cap. Our universe is Nifty 50 only. Amongst the Nifty 50, the companies where we have the highest weightage would be say, Reliance Industries, Infosys, and CIPLA.

 

How is the management structure of True Beacon shaping up?
Same as the previous company, Zerodha, it was a partnership between me and Nitin. True Beacon is pretty much the same. We have roped in Richard Pattle, a British guy aged 50 to kind of run the fund on a day to day basis. Not in terms of the fund management, but more in terms of the operational execution of the Asset Management Company. He’s part of the founding team as well. It’s essentially the three of us. 

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