SBI OPTIMAL EQUITY FUND – Category III AIF

The investment objective of SBI Optimal Equity Fund – Category III AIF aims to achieve capital appreciation over the long term. It seeks to provide superior risk-adjusted returns to investors by tactically managing the asset allocation between equities and derivatives, based on valuations, market sentiment, and volatility.

SBI Optimal Equity Fund – Category III AIF follows a dual framework philosophy, focusing on both generating returns and limiting downside, hence aiming for relatively lower volatility. It relies on a high conviction portfolio strategy for its long-only equity investments and employs a derivatives strategy for downside protection and return enhancement. The fund also emphasizes asset allocation as a critical part of its strategy to ensure superior risk-adjusted returns.

• Long Only Portfolio Philosophy:

– Business:
Seeking companies with strong competitive edges and growth potential
Favoring efficient capital use, pricing power, and low disruption risk

– Management:
Prioritizing companies with honest, successful, and invested management

– Valuation:
Valuing companies based on cash flows and industry comparisons, avoiding speculative methods

• Long Short Portfolio Philosophy:

– Combines undervalued long positions with short sales of overvalued stocks
– Aims to profit in varying market conditions and reduce market risk
– Focuses on detailed analysis to identify investment opportunities

The investment strategy of SBI Optimal Equity Fund – Category III AIF includes:

1. A concentrated portfolio of 25 to 30 stocks, focusing on bottom-up stock selection with long-term return potential.
2. A combination of core and satellite portfolio, where the core comprises high conviction bets on long-term structural ideas, and the satellite includes thematic plays with a 3-4 years’ perspective.
3. The use of derivatives for up to 1.3 times exposure, serving as a dynamic allocation tool.
4. An asset allocation framework that adjusts equity exposure based on valuations, sentiment, and volatility.
5. An asset allocation strategy that allows flexibility to go up to 0% net exposure through short positions or up to 130% net exposure through long positions.

SBI Optimal Equity Fund – Category III AIF’s approach is methodical, emphasizing valuation, business fundamentals, and management quality. The strategy attempts to invest in companies with improving business fundamentals and conducts periodic evaluations to ensure alignment with the investment philosophy.

The risk management parameters outlined include a cap on concentration risk, avoidance of foreign exchange risk, and a preference for investing in companies with strong business fundamentals, solid reputations, and manageable extra-financial risks. The fund maintains adequate liquidity and conducts due diligence to manage financial obligations effectively.