Sampadha’s Fortuneous Equities
Fortuneous Equities strategy is a semi-discretionary, quantitative strategy that is recommended for highly liquid equity and index derivatives.
The objective of the strategy is to generate income and stable long-term capital appreciation from a diversified and hedged derivatives portfolio of Equity and Equity-related securities.
However, there is no assurance that the strategy’s or product’s investment objective will be met.
What is Quantitative Strategy?
- Quant based strategies are sophisticated models that are used to identify opportunities. These models are made up of quantitative strategies that rely on Fundamental, Technical, and Derivatives data.
- Technical and derivatives data, as well as statistical models, are created by leveraging data on parameters that influence the price movements of underlying instruments.
- Quant models rely heavily on price, volume, and open interest data.
- These strategies are used by hedge funds and other large financial institutions to generate additional returns.
Benefits of Quant Models
- Reduces human emotions, biases, and errors when making trading decisions.
- A more disciplined selection and execution process allow for better risk management.
- Consistency in strategy, i.e. in the screening and implementation of opportunities.
- Returns are uncorrelated with other asset classes and sub-asset classes.
- Additional investment option for market participants.
Product / Strategy suitability
The strategy is suitable for traders/investors/participants who are seeking
- Long-term capital appreciation and regular income.
- Trades primarily in India’s most traded, and highly liquid equity derivatives based on technical and derivatives analysis.
- Additional returns on idle assets.
- Uncorrelated returns to the other asset and sub-asset classes.
- Process over outcomes and like to deal with uncertainties of life and business.
About the strategy
- Fortuneous Equities strategy will actively look for opportunities to achieve the objectives of regular income and long-term capital appreciation by investing or trading via long and short positions.
- The product or strategy considers long positions in Equity or Index derivatives with high appreciation potential and short positions in such derivatives which are likely to underperform.
- The strategy suggests trades in the highly liquid derivatives instruments of the world. These stock derivatives are the largest traded and are with low volatility compared to mid-cap and small-cap derivatives.
- Equity as an asset class has the best potential to beat inflation in the long run and generate long-term wealth. Derivatives as an asset class have the triple advantage of asymmetric returns, hedging or reducing underlying risks, and generating cash flows. Fortuneous Equities suggests trades only in India’s largest companies and their derivatives. These are India’s top companies with proven business models with a strong track record for decades and high institutional holdings.
- Fortunous Equities is a monthly product and the strategy will be evaluated quarterly. However, the product can help meet the long-term goal of capital appreciation.
- The product requires an ideal ticket size of Rs.1 crore cash margin or a combination of Rs.70 Lakhs Collateral (Approved Bank Fixed Deposits or Bank Guarantees or Approved Stocks or Approved Mutual Funds or combination) and Rs.50 Lakhs cash margin.
- Accepted collateral for equity shares, mutual funds is 60% of the portfolio’s market value. The maximum collateral amount for equity shares, mutual funds is Rs. 1.2 crores
- The margin from collateral accepted for Balanced funds or Debt funds is calculated at 80% of the portfolio’s market value.
- Clearing Corporations and Exchanges approved margin from collateral may be used.
- For better performance or results, subscribe to the product for a minimum period of 2 years.
What to expect!
- An almost equal number of winning and losing trades.
- Average profits for winning trades may range from Rs.5,000 to Rs.50,000 per trade, while average losses may range from Rs.20,000 to Rs.40,000 per trade.
- The losing streak could last up to 15 trades.
- Regular income and steady high capital appreciation over the long term.
What not to expect!
- Quick profits from the strategy
- Getting rich overnight
- Consecutive money-making month
Subscribers/ Clients/ Investors of the products should consider the risks involved with investing and trading, and decide (or consult your financial planner) whether the strategy suits your risk profile, investment requirements, and financial goals.
- Also, assess your financial status to ensure that you have sufficient resources and emotional tolerance to bear any losses that may result from this strategy or product.
- Consult your financial planner if you are unsure whether the strategy or product is right for you. Otherwise, please fill out our risk profile questionnaire to find suitable products and strategies for you.
- Check our risk profile questionnaire to find out suitable products and strategies for you.
Investments or trades are subject to market, economic, regulatory, market sentiment, and political risks. In view of these risks, the strategy may experience high volatility from time to time. The value of the investment may become worth more or less than at the time of the original investment. The investors or traders should consider these risks that may impact their capital, before investing.
Derivatives and Leverage:
The product or strategy employs derivatives, which increases leverage and may result in significant losses.
Probable risk of investing in unsustainable/weak companies. There may be a possibility that the good/strong company may become weak/unsustainable, may slip from India’s most favored company tag and become illiquid in the derivatives segment, and then be removed from the derivatives segment.
Price and Liquidity Risk:
- The product or strategy may suggest trades and investments during high-volatility market phases, as well as hold positions that may become illiquid.
- The risk of overpaying for a company can occur as a result of abnormal market behavior.
- Reduced trading volumes or increased price volatility can jeopardize proper timely exit or cost of efficient sale.
The product or strategy is subject to regular market fluctuations (or volatility), and the risks of trading or investing in financial markets apply. As a result, the value of asset or investment and income from the asset or investment, may rise or fall, and you may not receive the amount originally invested. In the case of derivatives, you could lose more than you initially invested.
The investment/trading analysis techniques and risk analysis done by Sampadha will not produce the desired risks or returns, and that certain policies or developments may affect the investment/trading techniques in connection with managing the product/strategy.
Total Returns Risk:
While our product or strategy aims to provide capital appreciation, a positive outcome is not guaranteed over any period and the entire capital is at risk.
Long Short Strategy Risk:
If the underlyings or strategy’s long and short exposures move unfavorably or in opposite directions at the same time, the strategy may suffer higher losses.
Short Selling Risk:
A short sale exposes the strategy or product to the risk of an increase in the price of the underlying (or derivatives); this could result in a theoretically unlimited loss.
The following are some of the additional risks associated with using derivatives strategies:
- Illiquidity and mispricing of the Futures/Options.
- Lack of opportunities.
- Derivatives’ inability to perfectly correlate with the underlying (Stocks, Indices, Assets).
- The cost of a hedge can be higher than the adverse impact of market movements during high volatile periods.
- Exposure to hedging over and above the hedging requirements can lead to losses.
- Exposure to derivatives strategies can also limit profits from a genuine investment transaction.
- The prices displayed on the screen do not have to be the same as the prices at which the execution will take place.
- In the case of option writing, the strategy’s downside could be greater than the option premium earned.
- This strategy is aimed to capture all three phases of trends (Bullish, Bearish and Neutral of the underlyings).
The strategy focuses on high conviction trade setups and underlying fundamental news flow which helps the trade direction to move in favor of our view, while seeking to mitigate concentration risks through diversification across highly liquid underlyings.
This product actively looks for trading opportunities frequently and is a highly suggested strategy for high risk – high reward seeking market participants.
Risk management is inbuilt in the strategy process. The strategy is developed to
minimize lossesin losing trades and maximize profits in winning trades. It aims to capture profit potential move of the underlyings by entry mechanism, while seeking to limit downside or losses through active risk management using derivatives.
As the strategy is implemented on derivatives, it is a high-risk high-reward strategy. The amount invested is always at high risk. However, we do our best to mitigate the risk. Through active research, we strive to deliver an enhanced risk-return profile for the product or strategy. Trades are always suggested with hedge or insurance, hence the risk is minimized.