Marcellus Little Champs
Marcellus PMS | Equity | | PMSIME's View on Marcellus Little Champs
Strategy
Investment Fund
While Marcellus has very strong pedigree, with a strong team and a very well defined investment philosphy, we do not believe that the current market environment is suitable for Marcellus's very strong quality focus. After almost a decade of re-rating & consistent outperformance of high-quality franchises, their valuations have turned very expensive, leading to a high valuation base for continued outperformance. In addition, with the economy starting to turn around, a lot of previously laggard economically sensitive sectors are starting to perform (with many of these companies not meeting Marcellus's investment criteria). This can potentially lead to the current strong underperformance continuing, until either Marcellus does not increase flexibility in their approach or the market environment changes.
Fund's Strategy View
It is a concentrated (20-30 stocks) small-cap strategy is a high-risk-reward strategy, but also one that is differentiated. Marcellus's strong focus on clean accounting, corporate governance, capital allocation, and barriers to entry help mitigate many of the normal risks while investing in small-caps, which makes this an interesting investment option for investors willing to take on a higher level of risk.
Fund Performance
The fund has underperformed peers & is amongst the worst performing schemes in this category in the last 5 year trailing returns. In terms of longer-term annual performance, performance consistency has been mixed, with the fund having outperformed & underperformed the bechmark roughly in half the years.
IME's View on Marcellus PMS
View on AMC
Marcellus offers strong investment options for those interested in high quality companies, but their lack of flexibility in investment approach hinders performance across market conditions. Recent weak performance and limited portfolio repositioning capabilities contribute to lower ratings for the seasoned investment team.
AMC's Pedigree
Marcellus, a respected PMS house, was founded by the core team behind Ambit's investment business. They have a strong focus on investing in high-quality franchises. While Marcellus got off to a very strong start, their very aggressive focus on their investment philosophy on high-quality franchises (even willing to ignore valuations) has limited their ability to reposition portfolios as the market cycle turned leading to very sharp underperformance which has adversely impacted their reputation in recent times.
AMC Team
Marcellus has a strong investment management team led by highly experienced professionals Saurabh and Rakshit, who possess strong track records and research credentials. The team's longevity and leadership as founders ensure stability in their philosophy and practices.
Investment Philosophy
Marcellus prioritizes investing in top-quality businesses with strong management and transparent accounting practices, following this philosophy consistently across all their strategies. While the philosophy has very clear merit, the issue can be that this is followed very rigorously, which does reduce the flexibility that the fund manager has to reposition the portfolio during economic upcycles & strong bull markets - where many sectors & companies with lower quality scores may be driving performance.
Investment Philosophy
Marcellus Little Champs is a small-cap strategy that invests in 15-20 companies with excellent corporate governance and capital allocation track record and strong sustainable competitive advantages.Key Aspects of Identifying Consistent Compounders
- Clean accounting
- Companies with a track record of superior capital allocation
- Companies that pass both those filters, identify those with high barriers to entry
Investment Process
Rigorous process to filter out based on 1) forensic accounts, 2) sustainability parameters, 3) bottom-up research, channel checks, and management meetings to invest in 12-15 high-quality companies.- Forensic Accounting: Avoid companies with poor corporate governance from a universe of 1000 companies.
- Sustainability Parameters: Identify companies that pass certain sustainable parameters through median score on individual parameters along with top 20% on aggregate score. Avoid companies struggling to cover cost of capital and debt-laden companies.
- Bottom-up research: Detailed analysis of secondary resources along with channel checks, independent views and management meetings.
Sell Framework
Sell decisions are based on 2 factors i.e lower than expected free cash flow growth and uncertainty around ‘longevity score’ due to a slowdown in growth, weakness in moat and legacy.- Free Cash Flow Growth: Weakening competitive positioning impacting slower growth
- Moat Score: Weakening franchise’s strength visible in pricing power
- Weakening Lethargy Score and Succession Planning
Trailing Performance
| 1yr | 3yr | 5yr | Since Inception | |
|---|---|---|---|---|
| Marcellus Little Champs | -4.5 | -3.5 | 8.2 | 12.7 |
| S&P BSE 500 | -6.6 | 14.7 | 19.2 | 17.8 |
| Alpha over Broad Mkt BM | 2.1 | -18.2 | -11 | -5.1 |
| Nifty Smallcap 250 | -9.3 | 21.5 | 27.2 | |
| Alpha over Category BM | 4.8 | -25 | -19 |
Performance as of: 30-Sep-25 | Inception Date: 29-Aug-19 | Performance are post-fees, pre-taxes. Global funds denominated in USD or fund currency.
Investment team
Rakshit Ranjan | 4-star rated FM
Fund Manager | 21 yrs Experience | 7 yrs at current firm
Past Experience: Ambit Capital (FM), Lloyds Banking (Director Research), Noble & Co (Analyst)
Rakshit has a strong investment management track record, having launched Ambit's Coffee-Can PMS in Mar-17, which he ran till Dec-18. The Coffee-Can PMS was one of the best-performing PMS schemes in 2018. Prior to setting up the Coffee-Can PMS, Rakshit was the lead consumer analyst at Ambit. His earlier experience was in UK equities at the Lloyds & Noble groups.
Saurabh Mukherjea | 5-star rated FM
Founder & CIO | 28 yrs Experience | 7 yrs at current firm
Past Experience: Ambit Capital (CEO), Noble (Head of India Equities), Accenture (Consultant), London Economics (Consultant)
Saurabh comes with a very strong investments background, having helped build Ambit's broking, wealth & investment management businesses as CEO. He was also responsible for building Execution Nobles India broking business (which was sold to Ambit) and having set up and sold Clear Capital (a UK based small cap research fund). Saurabh is a strong believer in investing in the long-term in very high quality clean businesses and has written a number of books including Gurus of Chaos, The Unusual Billionaires and Coffee Can Investing.
Ashvin Shetty | 3-star rated FM
Portfolio Manager | 22 yrs Experience | 7 yrs at current firm
Past Experience: Analyst (Ambit), Analyst (Execution Noble), Statutory Auditor (KPMG)
Ashvin Shetty has more than a decade of experience in equity research. Previously, at Ambit, he led the coverage on automobile sector from 2010 to 2017. Ashvin was recognised multiple times for his stock picking abilities. He was ranked in Starmine Analyst Awards 2013 and 2016 as a lead auto analyst. He later moved onto become a senior analyst for Ambit's Mid and Small cap PMS funds till November 2018. Prior to joining Ambit, he worked with Execution Noble as an analyst covering consumer and media space. He has also worked with KPMG's and Deloitte's statutory audit departments from 2004 to 2007 gaining extensive experience across Indian accounting standards and financial statement analysis. Ashvin is a BCom graduate from Narsee Monjee College (Mumbai). He is a qualified Chartered Accountant (ICAI India) and Chartered Financial Analyst (CFA Institute, USA).
