Growth Model Portfolio (Methodology Document)

Introduction to Model Portfolios

With Yadnya’s Model portfolios, what we are offering is making complicated investing simple. These Model Portfolios use the same asset allocation philosophy that many institutional investors utilize. The main pillars of the model portfolios are our research-based products – Stock-o-meter (https://investyadnya.in/stock-o-meter), Mutual Fund Subscription (MFYadnya.in), and Financial planning product (FinPlanYadnya.in). The idea is to utilize quantitative and qualitative factors observed based on our extensive research for suggesting model portfolios that make sense for individual investors like you. The foundation of these portfolios is asset allocation strategies followed by tactical sectoral allocations at the stock level. As Ray Dalio, the famous Hedge Fund Manager & Founder of Bridgewater says, “I think that the first thing is you should have a strategic asset allocation mix that assumes that you don't know what the future is going to hold.”

For the Growth Model Portfolio, true to its investment objective of aggressive returns, the majority of the allocation is done to equities followed by fixed income and lastly money market (cash equivalent). Exposure to equities is through Stocks and Mutual Funds while exposure to Fixed Income and Money Market is purely through Mutual Funds.

Methodology

Growth Portfolio

Investment objective

The aim is to generate long-term returns by investing in an Aggressive Growth-Oriented Portfolio.

Guidelines

1. 10 - 15 stocks portfolio
2. Stock portfolio - Minimum exposure of 5% and a maximum of 10% to avoid concentration risk.

Strategy

Buy and Hold investments with a time horizon of more than 8 years in high-growth stocks and mutual funds having strong fundamental characteristics and sound management.

The rationale for this Portfolio

We have included two modes of investment vehicles – Stocks and Equity Mutual Funds. For meeting the investment objective of an aggressive growth-oriented portfolio, looking at the long-term expected returns and risk levels of each asset class based on our long-term view of the Indian economy and financial market, we suggested a strategic allocation of 65% in Direct Equities and 35% in Equity Mutual Funds.

Please note this model portfolio is suitable for investors with a high-risk tolerance and risk appetite. Typically, to begin investing, we recommend starting with the mutual fund route, wherein you rely on the professional expertise of fund managers for making stock choices for you. After the initial learning curve, we suggest following it up with the approach of a Mutual Fund driven portfolio with some percentage of direct stock exposure.

Stock Selection Approach

We are a firm believer of Warren Buffett’s principle where he says that an individual should invest only in the companies whose business they understand. “Consumption” is the core theme for constructing these portfolios along with some peripheral stocks i.e., investing in companies that are into consumer-centric businesses that grow with consumption and businesses that are into financing this retail consumption. We are a believer in India’s consumption story, which include sectors such as – Banking & Finance, FMCG, Consumer Durables, Automobile, Paints, Healthcare, Retail, Telecom, Tourism, Real Estate, etc. This report by World Economic Forum gives a glimpse of India’s consumption story and expected growth in the next 10 years. There are a few peripherals stocks too that do not fit completely into the consumption theme, but their inclusion is driven by the strong fundamentals of the company and the company’s effort in making their brand and product visible to retail investors. We have purposely stayed away from sectors like airlines.

This model portfolio is constructed using the smart beta strategy of growth investing, wherein we try to identify high-growth stocks with good historical and future earnings growth, decent profit margins, respectable returns on capital and equity, and a worthy share price performance.

We follow Yadnya’s FIVE-G framework for bottom-up analysis of stocks. The framework of Financials, Industry Analysis, Valuation, Enterprise (Business Model), and Governance, helps in analyzing stocks and with the stock selection process within each sector’s tactical allocation.

Fund Selection Approach

Mutual Funds help in easy diversification and tapping on professional fund management and research expertise via an easily accessible channel. It is truly an invest-and-forget type of product unless and until there is a significant change in management or a market event-based trigger.

We have utilized our proprietary fund selection FRRISK methodology - MFYadnya.In for shortlisting and adding equity mutual funds, debt funds, and ETF/index funds in model portfolios.

Is this model portfolio for you?

This aggressive portfolio is appropriate for an investor with a high-risk tolerance and a time horizon of more than 8 years. Aggressive investors are willing to accept periods of extreme market volatility (ups and downs in account value) in exchange for the possibility of receiving high relative returns that outpace inflation by a wide margin.

The reason aggressive investors need to have a time horizon longer than 8 years is that a growth focussed portfolio will have a high allocation to stocks and if there is a severe downturn in the market, you'll need plenty of time to make up for the decline in value. Put simply, the more the allocation to stocks, the longer the time to stay invested!

Aggressive portfolios are best suited for investors in their 20s, 30s, or 40s. The expected average rate of return from an aggressive portfolio is 12-15% over time. In its best year, it might gain 25-30% and in its worst year, it could decline by 20-30%.

These are typical investor profiles who can refer to this portfolio –

1. A moderate to high-risk taker 20 – 30 Years old investor with low liabilities and a high savings rate
2. A high-risk taker 35 – 50 years old investor with dependents, above-average savings rate with a stable & well growing job
3. A very high-risk taker above 50 years old investor who has no liabilities and all financial goals are taken care of.

Time Horizon – Min. 8 years

Rebalancing – Quarterly

Important Dates

Inception Date – December 1st, 2019

Launch Date – December 6th, 2019

Last Market Driven Rebalancing – October 28^th, 2024

Last Quarterly Rebalancing – November 29^th, 2024

Next Quarterly Rebalancing on – March 1^st, 2025

Benchmark – BSE 500 TRI

Performance

This chart shows the portfolio’s cumulative performance starting from Nov 2017 until the latest month-end. The Growth Model Portfolio is compared against BSE 500 TRI index’s cumulative returns as a benchmark.

Growth Model Portfolio Cumulative Performance (As on 2^nd December, 2024)

Disclaimer: The information on this site is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF. All these portfolios are created based on our expert’s experience in the market. These Model Portfolios are prepared by SEBI Registered RIA.