The NAH Trio was a framework that the product team at Fintuple came up with to help the investors analyse the Portfolio Management Services (PMS) Strategies on our platform better. Today, we will break down the framework, explain the importance behind each category and how one of our partners used this in their day-to-day investment activity, to make an informed choice for their client.Once the 'User' has narrowed down the number of PMS Strategies to evaluate, using the built-in Advanced Search functionality on IQ, they can commence their journey of using the NAH trio to understand each shortlisted Strategy separately.
The Net Asset Value (NAV) growth is an inherent measure of the performance of the Strategy. An investment in any Strategy is made for appreciation, and looking at the NAV Growth gives users an idea of the performance, drawdowns, best and worst periods and the cumulative return the Strategy has generated. In short, this is a quick ‘report card’ for the Strategy.
The Assets Under Management (AUM) Growth gives the user an idea about the size of the Strategy. It's important for users to pay attention to this as the Strategy that the fund manager runs has to be in sync with the AUM of the Strategy. There are many cases where the style of the fund manager can absorb only a certain finite amount of capital. It is detrimental for the manager to raise additional capital, as this will be at the cost of liquidity. Similarly, very fast growth in AUM, over short periods of time, is never good for future returns. It's always important to look for fund managers who have organic growth in AUM, versus those who you see with a huge spike in AUM, abruptly.
It's important for investors or advisors to understand the sector exposure that each Strategy adds to their existing portfolio. Let’s assume you own a portfolio that has heavy exposure to the Financial Services sector, it's important to understand that if you add a new Strategy which is overweight in the Financial Services sector, it does not do much to your diversification. Instead, you may want to consider a Strategy which has significant exposure to a sector that your portfolio has a lower exposure to or else, you may want to rethink whether adding the new Strategy, is the best choice for your portfolio. Studying the sector allocation and its history is a proxy to understanding where the risk in the portfolio would come from.Let’s take a look at a use case of one of our partners, Raj Sharma (name changed on request), an IFA from Pune, who adopted the NAH trio methodology to the benefit of his investor base. Raj had a PMS Strategy in mind that he heard a lot of good things about, but wanted to evaluate its potential himself, before recommending it to his clients. He began his analysis by looking at the NAV growth (Portfolio tab on the iQ platform) for the Strategy on the iQ platform. This Strategy had one of the best returns in the Portfolio Management Services (PMS) industry over a 5-year period (Nov 2010 to May 2015). On further analysis, he noted that there was a follow-through on the AUM growth (Portfolio tab on the iQ platform) in the Strategy – as you would expect, investors tend to typically invest in a Strategy post a period of good performance. Interestingly, Raj noticed that while the AUM doubled in the consequent 5 years, the performance had stagnated during this period.
Now, the need to dig deeper into two aspects arose:
In order to understand the two aspects better, Raj looked at the Historical Sector Allocation (Analytics tab in the iQ Platform) and discovered that the driving factor for growth from Nov 2010 to May 2015 was the Strategy’s significant exposure to the Automobile sector.
This sector experienced a dip after 2015, but the Strategy did not have a major change in its exposure to the sector. As of June 2020, it still had a 7.3% exposure in the Automobile sector. Following this approach gave our partner more perspective into the Strategy and its performance, enabling him to be in a position to explain to his clients whether they should consider investing in this Strategy or not, what they can expect and the reason for its underperformance. Using Fintuple ensures that you no longer ‘sell’ a PMS Strategy, but you solve a problem for your investor.