MARCELLUS Kings of Capital

Fund Snapshot

Investment Philosophy

• Develop a multi-cap portfolio of financial stocks that includes not only lenders but also general insurers, life insurance, fund managers and brokers. Basically, Marcellus King of Capital concentrates on including niche financial businesses in its portfolio.
• The non-borrowing portion of the portfolio provides stability to the portfolio during periods of stress. The investment team of Marcellus King of Capital believes that insurance firms have a lower beta than lending firms, while asset management and investment firms do not take any balance sheet risks.

Targeted Sectors

• Lenders – Long track record of wise capital deployment, cautious credit underwriting, and solid corporate governance
• Life insurers – A significant distribution base, innovative products focused on the client, and a strong actuarial risk management methodology
• General insurers – A commitment to long-term profitability, return on equity, and a history of prudent underwriting throughout cycles.
• Asset managers/ brokers – Moated business strategies and powerful pricing ability

Portfolio Construction

Consistent Compounders and Little Champs are our two prior techniques, and Kings of Capital uses the same three principles for stock selection that those two systems do:

• Exemplary corporate governance and honest accounting;
• Proof from the past of wise capital allocation;
• High entry barriers allow businesses to consistently provide returns on capital that are greater than their cost of capital.

The significance of each of these characteristics is increased by the fact that financial services companies business models are inherently leveraged. As a result, we think we can use our knowledge of forensic accounting and our understanding of entry barriers to building a portfolio of high-quality financial services stocks. In light of this, we have assembled a portfolio of reputable brokers, asset managers, general insurers, and life insurers.

Given that the banks and NBFCs in the Kings of Capital portfolio are well run and have the capital to absorb NPAs and grow after the crisis, we think there is a significant opportunity for them to increase their market share. According to the household survey conducted by the RBI, just 5% of the nation’s wealth—or 95% of it—is made up of financial assets. Therefore, there is a significant structural potential for the non-lenders (insurers, asset managers, and brokers) in the Kings of Capital portfolio to profit from the financialization of Indian family savings.

Unique Feature

• They’ll put together a portfolio of 10 to 14 reputable financial firms with clear books of accounts, a lengthy history of successful development, and promoters who know how to make wise capital allocation decisions.
• The portfolio will include the whole range of financial service providers, including lenders (banks, NBFCs, and home finance firms), life insurers, general insurers, and asset managers/brokers, to gain from the financialization of Indian family savings over the next ten years.
• Because financial corporations are leveraged enterprises, the effects of subpar accounting are amplified. They have a decent chance of avoiding severe setbacks thanks to Marcellus’ focused attention on accounting quality and corporate governance.
• The demise of public sector institutions across the financial landscape and the acceleration in market share gains brought on by the numerous disruptions caused in the financial industry over the past few years will both be advantageous for a portfolio of financial companies with a long history of profitable growth and prudent capital allocation.