360 One High Growth Companies Fund

Fund Snapshot

Fund Overview

The latest improvements in the macroeconomic environment, as well as the resulting sell-off in risk assets, have created several investment opportunities. Devaluation, rising crude oil prices, and reduced liquidity may impact near-term growth for several companies. Still, their medium/long-term fundamental growth outlook has not changed materially. We believe the equity market correction is driven primarily by liquidity concerns in the fixed-income market and less by changes in the fundamental outlook for corporate earnings.

To capitalise on this, the 360 One High Growth Companies Fund intends to build a portfolio of 15-20 companies (subject to market opportunities, the number may vary).

Beneficiaries of long-term growth drivers that have not changed; or

Poised for a strong increase in earnings and cash flows as a result of a cyclical uptick in the industry; change in management; or

Quality defensives are shifting from modest to high growth due to new products, technology changes, mergers and acquisitions.

Investment Philosophy

The 360 One High Growth Companies Fund Category III AIF fund seeks to invest in companies that have the potential to grow at a significantly faster rate than the economy over the next few years. These firms are expected to expand at least in the high teens and to have long-term competitive advantages – proprietary intellectual property, strong leadership, distribution/cost advantages, or entry barriers specific to the respective sector – that enable them to expand.

Investment Strategy

Secular Growth

The key drivers are:

• Large industry opportunity
• Market leadership
• Longevity of growth
• Sustainable competitive advantage (brand, distribution, technology etc.)

Sector mappings are:

• Auto & auto ancillaries
• Consumer discretionary
• Private sector financials
• Insurance
• Retail

Defensive Growth

The key drivers are:

• New products and distribution – gaining market share
• M&A
• Technology upgrade

Sector mappings are:

• Consumer staples
• Healthcare
• IT services
• Media

Cyclical Growth

The key drivers in this case are:

• Management change
• The uptick in the industry cycle
• Completion of the CAPEX phase
• Turnaround of business

Sector mappings are:

• Industrials and infrastructure
• Private-sector corporate banks
• Logistics
• Oil & gas

Investment Framework

There are four framework segments. These are Cyclical Growth, Secular Growth, Defensive Growth and Value Traps.

• Secular growth contains the core portfolio of 50 to 80% of all allocations.
• The tactical allocation includes the segments of Critical Growth and Defensive Growth. These two have 20 to 50% capital allocation.

Investment Objective

The 360 One High Growth Companies Fund Category III AIF scheme strives for long-term capital appreciation by investing in equity and equity-related securities of companies with high potential earnings growth.

Unique Feature

Industry/sector potential:

• Avoid sectors vulnerable to regulation,
• High competitive intensity, technological changes, and
• Short growth cycles, as well as large industry opportunities scalable over time.

Business:

• Companies with sustainable competitive advantages and
• Higher ROEs than peers, and companies with poor free cash flows and declining market share, should be avoided.

Governance:

• Avoid companies with frequent equity dilutions,
• Excess leverage, and
• Unrelated investments.

Valuations:

• Offering a favourable risk-reward ratio,
• Valuations are not the only investment criteria, and
• Value traps and short-term fads should be avoided.