The investment strategy of Sanctum Wealth’s Shiv Gupta

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He was referring to its acquisition of the wealth management arm of Royal Bank of Scotland (RBS) in India in 2016. Since that acquisition, assets under management by Sanctum Wealth have grown by a compound annual growth rate (CAGR) of 29% for 17,000 crore, serving around 1,200 client families now.

Gupta, who has worked in the wealth management division for over two decades now, said: “Over the years I have moved from an active hands-on approach to a much more passive form in managing my portfolio.” Gupta reveals how his personal financial journey has evolved over the years in an interview with Mint for the “Guru Portfolio” special series. Edited excerpts from the interview:

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How has your investment journey evolved?

Over the past 25 years, I have experimented with many investment styles. As an international wealth manager I have been exposed to a wide range of instruments including fixed income, equities and derivatives across all markets, currencies etc.

I used to trade quite actively and try to exercise control over investments. When my trade calls worked, the payouts were a good multiple, like 8x-10x of what was invested. A bad year could also have seen up to 60% decline. Remember that these are largely speculative transactions. A disciplined trader would have had a slightly different way of managing the portfolio and the returns would not be as extreme as that. This tendency to invest has matured gradually.

Subsequently, I split my investments into a corpus at risk and a corpus for the long term. Initially it was a 50/50 split and I was used to trading only from the body of risk. Now I don’t even have a risk corpus. I follow a more traditional asset allocation approach.

But do you still trade?

I have neither the time nor the certainty of being very gifted for that. But, sometimes when I see market dislocation, if I have excess capital, I can make an opportunistic move by taking tactical calls. For example, when the pandemic was upon us, I replaced some of my fixed income securities with equities. And this percentage was relatively high. I generally maintain a 30/70 debt and equity split. But, in 2020, I might have taken 10% or 15% out of the debt component and put it into equities. I think dislocations offer good opportunities for outsized returns.

What did your portfolio look like during the bull market from 2002 to 2007?

At that time, the portfolio that I built in Singapore went through some evolution. I had a more stable portfolio with a defined, equity-oriented asset allocation. I moved — if I can use the word — to a balanced portfolio. My portfolio was also affected by the stock market crash of 2008 in a way that one would expect a normal balanced portfolio to be affected. I think at worst it may have gone down 30%.

So when the markets crashed in 2008, weren’t you worried or didn’t withdraw money?

Yes. I practiced what I preached. But, thereafter, I slowly moved from an international portfolio to a primarily national portfolio. It was a big change when I returned to India in 2009. Redeeming my international holdings was mainly driven by my cash needs at the time. I also moved from an active practical approach to a much more passive form in the management of my portfolio. The instruments in my portfolio would have been actively managed, but not directly by me.

So you’re not investing directly in stocks now?

I invest in mutual funds and portfolio management services (PMS). I try to keep the portfolio diversified in terms of market cap, active and passive funds, funds following different styles, etc. alpha of the fund manager or a particular investment style.

What is your strategy for the debt segment? Do you now stick to the shorter end of the curve?

My debt portfolio includes a mix of instruments. I follow a barbell approach, with a combination of long and short term bonds. Additionally, I try to diversify into a few categories, including corporate bond funds, gilt funds, money market, and credit risk funds.

Is gold exposure only in the tactical part of your portfolio?

Using Sanctum’s asset allocation framework, I allocate to alternative asset classes including gold, REITs and InvITs. It is planned to invest 10 to 15% of the portfolio in these asset classes and to under- or over-allocate them in accordance with the asset allocation recommendations.

Your opinion on the real estate asset class?

I think of it as part of the alternative asset class. This would have a role to play in a portfolio by creating better risk-adjusted returns through exposure to instruments such as REITs, commercial real estate and private equity instruments depending on the size of the portfolio.

That said, I have a problem with residential property as I think their prices are skewed in India. The 2.5-3% rental yield on these properties is not attractive from a fixed income asset class perspective. Additionally, the historical reasons for capital appreciation may no longer be present.

Personally, I do not own a primary residence. I live in a rented house. I have a country house, which is a lifestyle decision.

Can you name a few investments that have generated more wealth for you?

I would like to answer this question at the level of the tactical asset allocation decision rather than attributing it to a specific scheme or instrument.

Maintaining an overweight allocation to REITs and InvITs in my portfolio was a very good decision. Additionally, the tactical asset allocation decision to be “overweight” mid and small caps a few years ago generated the best alpha.

On the other hand, if you had asked me this question four years ago, when mid caps were not performing well, I would have said that was also my worst tactical decision.

One success and one failure you might think of in your personal finance journey.

I don’t think of it in those terms. I follow asset allocation rules, some volatility is taken into account and there is some return expectation based on basic and tactical asset allocation.

I don’t spend too much time thinking about the components, which individually stood out or not. I would expect the whole wallet to work fine. But to give some perspective, I don’t think a success stands out to the same extent as the decision to overweight mid and small caps.

Did you buy the wealth management arm of RBS in 2016 to launch Sanctum Wealth? How did you finance it and did you have any apprehensions about the transition from employee to entrepreneur?

I liquidated my assets to fund my participation in the acquisition. I did not take out any loans. Regarding apprehensions, I would be lying if I said that I had none. I was aware of moving from a particular lifestyle to a relatively less predictable lifestyle. And finances were obviously a big part of that. I was apprehensive, but I had expected this. One of the great things about dealing with volatile circumstances in life is to expect volatile circumstances in life. It’s my philosophy towards life, business and everything.

What lesson have you learned about managing other people’s money? Have you ever had sleepless nights?

There were many sleepless nights. Unfortunately, the services or products we offer are procyclical. Even if you have the knowledge, courage, and serenity to know that markets go in cycles and things will come back, you still have to tackle people’s moods as they go through this experience. It can expose us to many unpleasant interactions so many times. There is this concept of real preference versus revealed preference. And often when we profile clients, we ask them how they would react to a particular situation. Unless the person has been there, we don’t know how they will react to it.

One of the biggest lessons for me in the journey of being a wealth manager is to connect with clients, especially when the markets aren’t working. This assurance is invaluable in building relationships over a period of time. Because investors are generally subject to many different influences. And if you’re not there regularly, we may not be able to get them to do what’s in their own best interests.

Also, there is one more thing called the endowment effect. People tend to value what they already have more than something they don’t have. The best example of this is residential property. People don’t want to get rid of it. Thus, understanding these biases is very useful for a wealth manager.

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