Unlocking Abakkus Growth Fund: A Guide To Smart Investing

Abakkus Growth Fund is an investment fund that focuses on generating alpha and wealth creation by investing in a diversified portfolio of companies. The fund typically buys and holds investments for 3-5 years and follows a bottom-up approach to picking fundamentally strong ideas. The fund was founded by Sunil Singhania, who has over 25 years of experience and has achieved notable success in the Indian investment industry. Abakkus Growth Fund has a specific investment philosophy and framework, which guides its investment decisions and risk management strategies. The fund has received recognition and awards for its performance, and it is managed by a team of experienced professionals. The fund's objective is to create long-term wealth for its investors by investing in a range of companies, including small, mid, and large-cap enterprises, across various sectors such as textiles, steel, infrastructure, and IT services.

Abakkus Growth Fund-1: a multi-cap benchmark-agnostic portfolio with 30-40 companies

Abakkus Growth Fund-1 is a multi-cap, benchmark-agnostic portfolio that includes 30-40 companies. The fund was established on July 12, 2018, and is managed by Abakkus Asset Manager LLP, an India-based asset manager founded by Mr. Sunil Singhania in 2018.

The fund's strategy involves investing in fundamentally sound concepts chosen using a bottom-up methodology. It focuses on large-cap allocation based on a top-down sector approach, targeting stable and larger market businesses with strong and sustainable operations, and high ROEs for alpha creation.

From a risk management standpoint, Abakkus Growth Fund-1 limits individual stock exposure to less than 10% and sector exposure to less than 30% at the time of investment. The fund aims to generate alpha and wealth by typically holding investments for 3-5 years and adhering to the "MEETS" Framework.

The "MEETS" Framework involves:

• Checking the quality, capability, and track record of the management of the investee companies.
• Analysing Capital Expenditure and whether ROE is maintained or enhanced.
• Identifying decisional errors made by management.
• Analysing financial statements, including actual vs expected earnings and cyclical vs structural earnings.
• Targeting companies with the potential to double profits in 4 years or less, or halve EV/EBITDA in the same period.
• Monitoring stock price movements due to market trends.
• Identifying disruptive themes and events.
• Monitoring the investment time frame in line with Mean Reversion.
• Understanding the competitive positioning and moat of the business.
• Evaluating the size of the opportunity.
• Seeking consistent growth in profits.

The fund's investment philosophy is based on the 'approach of growth in value investing', which involves identifying companies that are undervalued in terms of stock price compared to their business earnings. These companies are expected to have higher-than-average growth in sales, market share, and earnings. Abakkus also follows a "buy and hold" strategy, investing in companies as if they were partners, rather than share traders.

Abakkus Growth Fund-2: a benchmark-agnostic flexi-cap diversified portfolio of ~30 companies

Abakkus Growth Fund-2 is a benchmark-agnostic flexi-cap diversified portfolio of around 30 companies. The fund was established on November 11, 2021, and is managed by Abakkus Asset Manager LLP, an India-based asset manager with a focus on alpha.

The fund aims to generate alpha and wealth creation by buying and holding for 3-5 years, with a focus on investing in companies with sustainable operations and strong ROEs. The fund has a contra and differentiated approach to investing in large caps and a bottom-up stock picks approach for broader markets.

From a risk management perspective, Abakkus Growth Fund-2 restricts single stock exposure to a maximum of 10% and sector exposure to no more than 30% at the time of investment. The fund also has a limited exposure of up to 15% in smaller companies and special situations to generate additional alpha.

Abakkus Asset Manager LLP was founded in 2018 by Mr. Sunil Singhania, who is also the fund manager for Abakkus Growth Fund-2. Singhania has over 25 years of experience in the investment management industry and has held senior positions at Reliance Capital Ltd. and Reliance Mutual Fund.

Abakkus' MEETS Framework: 12-step due diligence process

Abakkus Growth Fund is a multi-cap, benchmark-agnostic portfolio with 30-40 of the greatest ideas chosen from the bottom up. The fund was established on July 12, 2018, with the goal of generating alpha and wealth creation by buying and holding for 3-5 years.

The Abakkus MEETS Framework is a unique due diligence process that the fund adheres to. While the specifics of the framework are not publicly available, a general 12-step due diligence framework is outlined by Pierre-Alexandre HEURTEBIZE, which may be similar to the one used by Abakkus. This framework can be applied to a wide range of situations, including venture capital, strategy consulting, general investment, and due diligence.

The 12 steps of the due diligence framework can be categorized into 4 groups:

The 3Cs - Customers, Competition, Channels

• Understand the existing customers, target demographics, revenue concentration, customer loyalty, purchase patterns, traction/growth, upselling, and improvements in revenue per customer.
• Assess the competition - its fierceness, fragmentation, positioning, size, competitive advantage, barriers to entry, direct/indirect competitors, etc.
• Analyze the distribution channels - their dependency, scalability, complexity, costs, and risk of decline.

The 3Ms - Management, Market, Money

• Evaluate the management's fit with the investor's culture, background, track record, and skills.
• Define the target market and assess its size, addressability, fragmentation, maturity, expansion possibilities, and previous sources of financing.
• Understand the current and expected cash burn, how new cash injections will be used, how well cash has been managed, and the expected profitability and timelines.

The 3Ps - Product, Projections, Partners

• Assess the product's phase, design, user experience, virality, pricing, roadmap, advantages/disadvantages, problems solved, alternatives, liabilities, and positioning.
• Review management projections and assess their understanding of the business and cash generation.
• Analyze partnerships and the nature, dependency, and strength of relationships with suppliers, distributors, affiliates, and communication partners.

The 3Ts - Technology, Transaction Terms, Terrible Things

• Evaluate the technology used - its advancement, patent protection, potential infringement, availability of expert staff, risk of obsolescence, reliability, and documentation.
• Structure the transaction with clear terms to protect investors and motivate management.
• Identify potential risks, including tax compliance, legal documents, accounting practices, and business conducted with blacklisted organizations/countries.

This comprehensive due diligence framework ensures that all critical aspects of an investment opportunity are thoroughly vetted before making any decisions.

Abakkus' investment philosophy: growth in value investing

Abakkus Asset Manager follows the 'approach of growth in value investing', which involves identifying companies that are undervalued in terms of stock price versus business earnings. These companies are selected for their potential to grow sales, market share and earnings.

Abakkus believes that these companies offer a margin of safety due to their low investment price, and that there is a high chance of the stock being re-rated as the growth story gains traction in the market. This philosophy is reflected in the Abakkus Growth Fund, which is a multi-cap, benchmark-agnostic portfolio with 30-40 of the best ideas chosen from the bottom up.

The fund focuses on companies with sustainable business practices and high ROEs for alpha generation. From a risk management perspective, Abakkus restricts single stock exposure to less than 10% and sector exposure to no more than 30% at the time of investment. The fund aims to generate alpha and wealth creation by typically holding investments for 3-5 years and adhering to the "MEETS" Framework.

The "MEETS" Framework involves:

• Checking the quality, capability, and track record of the management of the investee companies
• Analysing Capital Expenditure and ROE
• Checking for decisional errors made by management
• Analysing financial data, including the quality of earnings vs reported numbers, actual vs expected earnings, and cyclical vs structural earnings
• Identifying companies with the potential to double profits in four years or less, or halve their EV/EBITDA in the same time frame
• Monitoring stock price movements and market trends
• Identifying disruptive themes and events
• Monitoring the investment time frame in accordance with Mean Reversion
• Understanding the competitive positioning and MOAT of the business
• Evaluating the size of the opportunity
• Seeking consistent growth in profits

Abakkus also believes in the "buy and hold" strategy, investing in companies as if they were partners, rather than trading shares. They also focus on investing in small and mid-sized companies with scalable business models that have the potential to grow into larger enterprises over time.

Abakkus' approach to research: bottom-up

Abakkus Growth Fund – 1 is a multi-cap benchmark-agnostic portfolio with 30-40 of the greatest ideas chosen from the bottom up. The portfolio invests in fundamentally sound concepts chosen using a bottom-up methodology.

Abakkus's bottom-up research approach involves selecting portfolio companies with a focus on profit & loss statements, balance sheet, cash flow statements, and valuations. Abakkus's investment philosophy is centred around the 'approach of growth in value investing', which means identifying companies that are value picks in terms of stock price versus business earnings.

Abakkus looks for companies with traits and potential for growth in sales, market share, and earnings. These companies offer a margin of safety due to their low investable price, and their stock has the potential to be re-rated as their growth story gains visibility in the market.

Abakkus's bottom-up approach also includes a focus on the balance sheet, earnings, and the 'MEETS' framework. The 'MEETS' framework involves checking the quality, capability, and track record of the management of the investee companies, analysing capital expenditure and ROE, identifying decisional errors, and diving into the financials to check the quality of earnings versus reported numbers.

In summary, Abakkus's bottom-up research approach involves a detailed analysis of financial statements, a focus on growth potential, and the application of the 'MEETS' framework to identify companies with strong fundamentals and growth prospects.

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