Marcellus Kings of Capital Portfolio (KCP)

MARCELLUS Kings of Capital is a quality portfolio that invests in a portfolio of financial services companies beyond just the usual lenders and build a portfolio of niche financial services like insurance, broking, AMCs, wealth management companies etc.

The key objective of Marcellus Kings of Capital PMS strategy is to own a portfolio of 10 to 14 high quality Financial companies (banks, NBFCs, life insurers, general insurers, asset managers, brokers) that have good corporate governance, prudent capital allocation and high barriers to entry.

Marcellus Kings of Capital  (Marcellus KCP PMS) is a focused and a concentrated fund with upto 15 stocks in its portfolio. The aim of Marcellus KCP is to construct a multi-cap financial services-focused portfolio with moated and resilient businesses. Marcellus Kings of Capital will have only those companies that have a clean balance sheet and high corporate governance as Marcellus proprietary forensic filtering eliminates businesses that have poor accounting quality.

The non-lending part of the Marcellus Kings of Capital portfolio adds resilience to the portfolio during times of stress because insurers have a lower beta than lending businesses while asset management and brokerage businesses do not take any balance sheet risks.

At Marcellus, the Purpose is to make wealth creation simple and accessible by being trustworthy and transparent capital allocators.

The investment philosophy at Marcellus has evolved from the ideas of Kirby and Thiel, which they have refined further.

The investing approach has 3 pillars:

Clean Accounts: They have quantitative frameworks which use a combination of forensic accounting and capital allocation assessment define our investible universe.

Capital Allocation: They look for companies with superior track record of capital allocation – companies that generate free cash flows and reinvest them in the business to fuel further growth.

Competitive Advantage: The experienced investment team through in-depth primary research, constructs a portfolio of companies with deep competitive moats.

These companies are then held on for long periods of time with little or no churn, which allows them to capture the benefits of long-term compounding and deliver superior returns.

Given the inherently leveraged business models of financial services companies, the importance of each of these traits is further amplified and therefore one can put skills around forensic accounting and understanding barriers to entry to good use to create a portfolio of high quality financial services stocks.

Keeping this in mind, the Marcellus team have created a portfolio of high-quality lenders, general insurers, life insurers, asset managers and brokers.

They believe there is a massive opportunity for the banks and NBFCs in the Kings of Capital portfolio to consolidate market share as these are well run lenders with adequate capital to not only absorb NPAs but also grow post the crisis. As per RBI’s households survey, 95% of Indian wealth is in physical assets with only 5% being in financial assets. The non-lenders (insurers, asset managers and brokers) in the Kings of Capital portfolio therefore have a large structural opportunity to benefit from the financialization of Indian household savings.

Over the past decade, India’s Financial Services sector has been hammered by demonetisation, the ILFS crisis, Yes Bank’s collapse and now the Covid crisis putting extreme pressure on weak lenders.

However, history shows that investing in high quality financial stocks during a crisis proves to be highly rewarding. The key objective of Marcellus’ Kings of Capital strategy or Marcellus KCP PMS is to own a portfolio of 10 to 14 high quality Financial companies (banks, NBFCs, life insurers, general insurers, asset managers, brokers) that have good corporate governance, prudent capital allocation and high barriers to entry.

• In 2021, Marcellus’ Consistent Compounders Portfolio or Marcellus CCP was awarded Rank #2 as the Best Newcomer PMS across all categories, on a 2Y Absolute Returns Basis. These Awards were hosted by PMS AIF WORLD, in association with IIM-Ahmedabad.

• In 2021, Marcellus’ Little Champs Portfolio or Marcellus LCP was awarded Rank #2 as the Best Newcomer PMS across all categories, on a 1Y Absolute Returns Basis. These Awards were hosted by PMS AIF WORLD, in association with IIM-Ahmedabad.