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Overview
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Systematically Traded Portfolio
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The wish of every investor is to buy at lows and sell at highs. However, investors
worldwide have recognized the fact that this is easier said than done. To do this,
one needs the trait of equanimity, which is very difficult to attain. Equanimity
means evenness of mind, which does not easily get elated or depressed.
In the world of investments, equanimity can pay rich dividends as it allows investors
to overcome emotions of fear and greed. Fear prevents us from buying at lows when
markets are depressed and greed prevents us from selling at highs when markets are
exuberant. If one can detach investment decisions from these emotions and follow
a rigorously tested quantitative discipline, equanimity in investments can be achieved.
Such models are used worldwide by sophisticated and large investors.
Nifty STraP is one such quantitative model developed by Benchmark Asset Management
Company Private Limited. Nifty STraP, we believe, is the first such exercise in
India. It has been in use since February 2003.
In a nutshell, Nifty STraP implements the age-old principle of sell at highs and
buy at lows, disciplined by a quantitative model.
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Simulation Results
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The success of any quantitative investment model depends on rigorous simulation
in various situations and circumstances.
Nifty STraP has been tested since January 1, 1992 till May 29, 2009. During this
period Nifty STraP portfolio with initial investment of Rs. 1,00,000/- has grown
to Rs. 6,30,171/- returning 11.20% per annum while a similar amount invested in
Nifty Index has grown to Rs. 6,49,548/- returning 11.40% per annum.
As can be seen from the chart, Nifty STraP’s performance is very close to Nifty
Index. Nifty STraP protects the portfolio on the downside rather than trying to
outperform it.
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Assumptions
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Transaction cost at 0.50%
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Return on Cash at 6% per annum
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Nifty returns are returns of Nifty Price Index
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Returns are before Management fees
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Asset allocation on autopilot
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The chart demonstrates how the model reduces equity exposure when the market goes
up and increases equity exposure when the market comes down.
Nifty STraP, due to its dynamic nature can serve as an ideal tool for tactical asset
allocation
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Downside Protection
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STrap
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Nifty
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1 Year
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197
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51
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85
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53%
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3 Year
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173
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12
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47
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54%
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5 Year
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149
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0
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21
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58%
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The table illustrates how Nifty STraP provides greater downside protection in a
falling market. For this, we have considered a number of rolling periods i.e. every
month one rolling period will commence.
The results show that Nifty STraP has far lesser periods of negative returns and
thus provides superior protection in a downward market. It outperforms Nifty in
each and every negative period without exception.
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Mean Returns
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STrap
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Nifty
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STrap
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Nifty
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STrap
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Nifty
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1 Year
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50%
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92%
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9%
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14%
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-24%
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-52%
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3 Year
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23%(56%)
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56%
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9%
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12%
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-2%
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-14%
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5 Year
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17%(44%)
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44%
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9%
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11%
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2%
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-6%
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The table depicts rolling returns generated for Nifty STraP compared to Nifty Index.
As can be seen from the table, for 1 year rolling mean returns, though Nifty STraP
has marginally underperformed the Nifty in a bull market, it has provided protection
during a bear market.
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Risk (St. Dev.)
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1 Year
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12.58%
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33.14%
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3 Year
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5.22%
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16.28%
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5 Year
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3.43%
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12.22%%
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The advantage of STraP from the risk angle where risk is calculated using the standard
deviation.
The table shows that the standard deviation for any period is less than half for
Nifty STraP as compared to Nifty Index. This also means that timing of entry into
Nifty STraP has a lesser effect on performance as compared to the time of investment
into Nifty Index.
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RISK FACTORS
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1.
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Securities investments are subject to market risks and there can be no assurance
or guarantee that the objective of any of the PMS Scheme will be achieved
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2.
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As with any investment in securities, the Net Asset Value (NAV) of the portfolio
under the Portfolio Management Scheme can go up or down depending on the factors
and forces affecting the capital market.`
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3.
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Past performance of the Portfolio Manager does not indicate the future performance
of the same scheme in future or any other scheme(s) of the Portfolio Manager.
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4.
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Straps is only the name of the Portfolio Management Scheme and does not in any manner
indicate either the quality of the scheme or its future prospects and returns. Client
is therefore urged to study the Disclosure Document carefully and consult their
Investment Advisor, if any, before they enter into Portfolio Management Agreement.
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5.
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The Portfolio Manager is not responsible or liable for any loss or shortfall resulting
from the operation of the Scheme.
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6.
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Investors in the Scheme are not being offered any guaranteed or assured returns.
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7.
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Because of halt of trading in market the portfolio may not be able to achieve the
stated objective.
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