July 2022 was one of the best months for Rupeeting so far.
The highlight was that the Monopolies portfolio was the best performing on smallcase as of July 28, 2022. Best not amongst Rupeeting’s portfolios, but across all portfolios listed on smallcase.
Also, two of our portfolios were amongst the top 10 portfolios on smallcase in terms of returns for July 2022 - Monopolies and Bread & Butter.
Quite cool, no?
Overall, this month, other than Disruptors, all portfolios beat their respective benchmarks, and materially outperformed peers. The performance of Disruptors was marred by Zomato and PolicyBazaar.
Markets in July
It was one of the first few months this year, where all asset classes were positive - quite a change to what we've been seeing so far in 2022.
Equities: Despite all the trouble around a likely US recession, the markets reacted well to rate hikes by the Fed. Moreover, inflation across commodities has been cooling off in anticipation of an economic slowdown, which also is validated by the US GDP, which shrank for the second straight quarter. But at the end of the day, the recession fear is real, and that can’t be taken lightly.
Debt: Government bonds performed better than corporate bonds after several months. Yield curves though have been inverting, and longer term bonds performed better than shorter term bonds. For July, the 10 year G-Sec return was at 1.44% versus 1.41% for the 5 year G-Sec.
Gold: Gold underperformed as the month saw a contrast to the previous months, which were marked by a significant shift to safety. But as we said earlier, Gold has performed extremely well over the last year, and the upside here may just be capped.
Rupeeting in July 2022 - Equity Portfolios
All our Equity portfolios (barring Disruptors) outperformed the markets. We attribute the success to:
Robust sector allocation (example - 22% exposure to Defence in Monopolies)
Our long-term mindset (example - we haven't rebalanced Bread & Butter despite the pain, and that’s paying off now)
Superior stock selection (example - several stocks drove overall portfolio outperformance across portfolios)
Digging a little deeper into the reasons for outperformance (and underperformance in case of Disruptors!):
Rocketship: Higher exposure to mid and large caps, bottom-up approach in tough and declining markets
Monopolies: High exposure to Defence, superior stock selection, fundamental strength in stocks, addition of value stocks
Disruptors: Exposure to stocks like Zomato and Policybazaar
Bread and Butter: Revival of the FMCG sector as commodity inflation started to tame down
Value Migration: Higher exposure to mid and large caps, bottom-up approach in tough and declining markets
Socially Responsible Investing: Fundamentally strong companies which have been appropriately chosen in accordance to market conditions
Rupeeting in July 2022 - All-Weather Portfolios
Due to our opportune decisions at the previous rebalance and careful observation, our All-Weather Portfolios managed to outperform their respective benchmarks.
What worked for us?
Maintaining maximum possible exposure to equities for all the risk profiles, despite a challenging environment for equities
Maintaining a good balance between large caps and mid caps
Avoiding small caps altogether
Maintaining a good balance between government and corporate debt
Maintaining minimal exposure to Gold
What could have worked even better?
Adding international equities back
For now, we’ll just let the numbers speak for the good decisions we made!
What’s next for the market?
Our view is that the market will continue to flip its mood. There are too many confusing signals at the moment for the markets to have a firm direction. In the US for example, while the Fed aggression is being taken positively, there has been a de-growth in GDP for two straight quarters now.
Prompt and aggressive Fed action may solve for inflation (a bit), but that’s from the demand-side of the equation. Supply issues continue to be unresolved as the Russia-Ukraine conflict and China’s slowdown hamper global supply chains.
In that context, we still don't see a fundamental shift in the direction of the markets, and are mindful of longevity of rallies like the one seen in July. We continue to remain oriented towards being selective on sector allocation, and taking a more bottom-up approach towards portfolio construction.