A deep dive into Gulaq Gear 6 Portfolio performance

The story of Gulaq started in May 2020.

We had spent years in building and refining our quant models for Gulaq portfolios. The algorithms have produced promising backtested results. It was in 2020, we have received a green signal to go live.

Estee, the parent company of Gulaq and a pioneer in Quant trading in India since 2008, is managing one of the best performing PMS funds in India. Despite the strong track record, our team at Estee felt long only equity investing was a different ball game altogether.

We were confident that we have built premium Quant portfolios. But you never know what market throws at you. With confidence and the objective of making investing easier, we launched our first Gulaq Portfolio – Gear 6 in May 2020.

There were a few investors who invested with us in the 1st month. With the kind of performance Gulaq gave, our investors have grown significantly.

This month, in less than 2.5 yrs, we have given 200% returns in this portfolio. The benchmark has given about 100%.

Let’s do a deep dive into this portfolio’s performance since launch.
1. Risk and Returns:
“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong” – George Soros
Any investor before investing would have certain return expectations, and love to have access to those portfolios which can outperform the benchmark consistently. This can be done with relative ease by taking that excess risk. But how do you ensure that the portfolio you have invested in is giving those excess returns without taking excess risk?

Let’s see how Gear 6 portfolio has performed on these aspects. We have generated 49% alpha over the benchmark in FY 21-22. If you look at the Sharpe ratios, which measures risk adjusted returns, our Sharpe ratio stands at 2.91 versus 1.16 for Equity Multicap index.

One of the most important criteria for investing in a fund is how much money they make when they are right, vs how much money they lose when they are wrong.

Since Oct’21 when markets made all time high, markets are still down by about 5%. But we have generated +11% returns.
Gulaq Gear 6 Returns
Let’s also consider bull markets scenario. From May 2020, bull markets have lasted till October 2021. During this bull market we have produced 170% returns, compared to 110% returns given by the benchmark.
Gear 6 benchmark
The performance is a testament to how Gulaq Gear 6 portfolio has transformed into an Alpha generating machine.
2. Performance at stock level:
Let’s break the portfolio and see the impact of our top performers and losers.

Our top 5 winners generated on an average 8.8% alpha, whereas an average loser lost just about 1.7%.

Let’s look at the best and worst performers
Key Winners
Stock Name Avg Weight (%) Contribution to Alpha
PERSISTENT SYSTEMS LTD 14.91 20.20
KPIT TECHNOLOGIES LTD 4.95 8.21
INDIAN ENERGY EXCHANGE LTD 8.37 7.00
L&T TECHNOLOGY SERVICES LTD 1.69 4.97
POLYCAB INDIA LTD 5.89 3.58
Key Losers
Stock Name Avg Weight (%) Contribution to Alpha
OIL INDIA LTD 2.03 -1.80
TCI EXPRESS LTD 2.75 -1.78
ELGI EQUIPMENTS LTD 0.44 -1.71
CUMMINS INDIA LTD 1.1 -1.56
GUJARAT GAS LTD 4.10 -1.54
Average top 5 performers generated 8.5% alpha, whereas the average loser lost just about 1.7%. A hint at the robustness of our algorithms can be seen in the weights as well. Key losers’ average weight is very low compared to the average weight of top performers. Hence, it’s not like a single stock have fuelled the performance, it’s the magic created by every part of the portfolio.

3. Diversification:

History teaches us it’s wise to put your eggs in different baskets, which is also known as diversification. At Gulaq, how robust is our diversification? Diversification in asset classes is widely popular. However, the unpopular yet more robust approach is diversification at factor level.

We achieve diversification at factor level through our multi-factor investing approach. We track 130+ factors comprising of fundamental, technical, and macro-economic factors, and we rebalance our portfolios based on the changing market conditions.

Let’s take example of factors like value, growth, momentum, and low volatility. Value factor performs poor in bear markets. On the other hand, low volatility factor performs well in bear markets. Momentum performs well in up trending markets and poorly in downtrend. Hence, achieving factor level diversification makes portfolio robust and flexible for dynamic market conditions.

Let’s see how we have diversified the portfolio across market caps. Large and Mid-caps have captured lion-share of the allocation with 80% approximately. As we all know Gear 6 is 100% equity and suitable for aggressive investors. The 20% allocation towards the Small-caps is pretty much in line with the targeted risk category.
Gulaq Gear 6 Market Cap Allocation
We cannot ignore sector allocation when we talk about Diversification. Let’s have a look at how diversified the portfolio has been across sectors:
Gulaq Gear 6 Sectoral Allocation
Gulaq Gear 6 Portfolio Performance

Last two years have witnessed speculations around recession, inflation, etc. During these volatile markets, it is evident that the allocation across sectors also has varied significantly in different time periods.

We are proud to see the brilliant performance of Gulaq Gear 6 portfolio on all the three fronts: Risk and Returns, Performance at stock level, and Diversification. We had spent years in researching, developing, and refining our algorithms. it’s a treat to watch them performing none to second.

In case you haven’t subscribed to Gulaq portfolios, do subscribe. Happy investing!

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