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Charts & Analysis

How We Have Done: The Performance of our Premium Stock Portfolios


Its been about 18 months since we spoke of the performance of the premium portfolios all together. (See previous post) So we start off looking at what has happened at the portfolios over the last 1.5 years.

Long Term Multicap Portfolio

The long term multi-cap portfolio which is our premier portfolio offering at Capitalmind was launched in 2014. After three consecutive years of strong positive performance, the portfolio generated negative returns in 2018 while being currently positive in 2019.

Here is the NAV of the Portfolio compared against Nifty 50.

How We Have Done: The Performance of our Premium Stock Portfolios

The bane of the portfolio’s under-performance can be linked to the pharma companies which did not do well. This was on the back of these specific businesses facing headwinds and business getting hampered due to inspection of their facilities.

The other drag on the portfolio was companies operating in the infrastructure segment. These companies were impacted due to slowdown in their order flow and tepid economic growth. Few of the banking names and auto ancillary companies also dragged down the performance.

Here is the monthly returns generated by the Portfolio.

How We Have Done: The Performance of our Premium Stock Portfolios

We closed a bunch of positions. Winners include Supreme Petro (+182%), Aegis Logistics (+126%), Gujarat Alkali (76%) Tata Investment Corp (moved to Div Yield, +58%) and Tata Coffee and TNPL (30%).

We also exited some losers – Sintex where we exited post the de-merger but well below our acquisition price.  Additionally. wee booked profits (or loss) in a few other companies because they were richly valued or we did not see runway for these companies.

We moved a few of them to Hold from Buy as we feel that 2018 was a one off and with the companies having strong fundamentals could recover in time to come. Action on this will happen in the course of time.

Towards to the end of 2018 and going ahead into 2019 we found few opportunities in a few midcap companies and decided to add them to our portfolio. Midcaps did not have a great 2018, with the Nifty Midcap 150 falling by 13% in the calendar year, with few stocks falling even harder.

For instance we added one company from the steel pipe industry. The company was available at 50% its high price recorded in January, 2018. The company is the leader in its space, expanding its product portfolio be bringing in new technologies, lowest cost producer of its product, manageable debt and generating ROE and ROIC of greater than 15%. It is these kind of qualities that we look for while buying companies and in this case we found value at 50% fall and bite the bullet.

Another company that we added was in the construction space. The company had clear visibility of revenues for the next two years, ROE and ROIC of +15%, zero debt, very efficient in managing its working capital. The fall in the markets last year provided us with an opportunity to add this company last year.

The end of a bull market heralds the arrival of a bear market. While the first stage of the bear market is price damage, the second and what really hurts the investor is the longer period of time correction. We believe that much of the price damage is over and we are currently passing through what could be a long period of time correction.

While we don’t have a crystal ball to predict when we will see a revival, we believe these are good times to start adding stock which fulfill our criteria into the portfolio. We anticipate adding more stocks in the months to come which hopefully should complete the portfolio.

Momentum Portfolio

The momentum portfolio we run at Capitalmind is a multi-cap portfolio. In bull markets, the portfolio is loaded in small and mid caps. 2018 was a year of destruction of such stocks as markets reacted with many stocks losing all the gains accrued over multiple years.

Thanks to regular rebalance we were able to move out of stocks which started to show underperformance fairly early in their downtrends. Take for example Avanti Feeds. We had entered into the stock (all prices adjusted for Bonus and Split) in August of 2017 at 600. In May 2018, we exited the stock at close to 800. The stock in between had floated upto 980, but given that we await evidence for removal, it was down to 800 before we called it quits

While at that point of time, it would have seemed a tad too late, when one looks at the stock price it’s today when it trades at 350 levels, one is surprised by the damage such a well known stock has taken. Then again, stocks falling 50% to 60% have been the rule rather than an exception.

For all its other faults, the reality of momentum investing is that one is not burdened with stocks which had a great run in the last bull run but are now washed out wonders with no real takers. Removing stocks early is the key to our own behavioral limitation as well since the further a stock goes down, the tougher it becomes to cut the position.

How We Have Done: The Performance of our Premium Stock Portfolios

Coming to the performance, if not for September 2018 when markets literally went down the tube so as to say, the performance has been fairly solid throughout. Since Inception, the portfolio is up 23% on an absolute basis and CAGR of 10.86%.

With stocks more or less now seeming to go through a time based correction versus price based correction, we believe that the coming year will be far better than the year that ended in March 2019. Here is the monthly break-down of returns 

How We Have Done: The Performance of our Premium Stock Portfolios

In April of this year, we have launched our Momentum Portfolio in our Capitalmind Wealth PMS as well. The philosophy of the strategy remains the same though a few stocks may be different due to liquidity filters which are more tighter for PMS vs Advisory. If you are interested in the same, do connect with us. 

The Dividend Yield Portfolio

Dividend Yield Portfolio is a blend of fixed income and equity portfolio. The portfolio was designed to give consistent returns on the investments in the form of dividends. Dividends are always a prerogative of a firms board and no one can guarantee next year’s dividend outflow. We looked at historical trends in dividend outflows of various firms and shortlisted stocks which have consistent track record in dividend payments. The portfolio however cannot guarantee a fixed return in terms of dividend. The portfolio was came into existence on 1st Jan 2016 with nine stocks. Since then the portfolio has swelled to current size of 18 stocks.

We monitor the portfolio on a periodic basis and prune out the stocks which are not giving significant dividends. In line with that we have eliminated couple of stocks like Karnataka Bank and Canara Bank as they failed to give dividends consistently since we bought them.

The ideal comparison of our portfolio can be done with Nifty Div 50 Opportunity Index, whose core ideology matches with our. However in case of Nifty Div 50 Index, dividends are reinvested in the portfolio and in ours we do a cash out.

How We Have Done: The Performance of our Premium Stock Portfolios

Note: The above chart only takes consideration of capital returns (excludes dividend returns) of CM DivYield Portfolio.

If we do a comparison of index and our portfolio, the total returns of index has been at 56.5% (Capital returns + dividends), where as ours capital returns stands at 39.1% and dividend returns of another 11.55%. The Index portfolio and our portfolio are in nearly in same range with our portfolio lagging by roughly 5% over a period of 3.5 years.

The below chart represents daily annualized dividend yield along with daily absolute dividend yield (compared to AUM).

How We Have Done: The Performance of our Premium Stock Portfolios

The major dip in returns at the beginning of March 2019 is on due to new stock additions to the portfolio. We added 8 stocks in a single day, thus the AUM went up and the yields fell. The sudden addition of 8 stocks was to accommodate changing pattern of cash distribution adopted by companies. In the words of Benjamin Franklin

“Change is the only constant in life. Ones ability to adapt to those changes will determine one’s success in life”.

Firms were moving more towards a buyback rather than dividend distribution as government introduced dividend distribution tax in early 2017. Indian firms started to opt for buyback as the mode of cash distribution to evade dividend distribution tax. Thus there was little interest in dividend and more inclination towards buybacks. In line with that, we added 8 stocks which are increasingly opting towards buyback in big numbers.

Read: Why are companies doing buybacks?

Going forward buybacks done in the dividend yield will be considered dividends and cashed out. For instance Wipro which is in our portfolio, is doing a buyback with Ex date at 20th June 2019. The buyback is 5.35% of outstanding shares at a price of Rs 325. Assume if we hold 100 shares, then we can conclude that Rs 1,625 (5×325) is the dividend given out. The outstanding shares post buyback in our portfolio will be 95. Please note we are not considering reinvesting the dividends in our portfolio.

The Options and Experimental Trades

There’s good news and bad news. The bad news first.

Stratoptions, which has done very well in the past, saw a lousy year. We only saw a return of about 6% in the whole year, largely due to IVs being really low and our fear of taking too much leverage. In a few months we saw losses as well – the last one being a Rs. 5,000 loss in March 2019 after which we paused for elections. Lethargy has meant we haven’t restarted with new positions. However, the stratoptions tool continues to rock and you can use it for your positions too.

Experimental option trades did much better. These are infrequent trades only during results or such, when volatility expectations spike. We didn’t too much, but what we did was reasonably attractive at a 37% return overall.

How We Have Done: The Performance of our Premium Stock Portfolios

We also did a bunch of regular trades – some wild option trades included. But one thing stood out. The Tata Steel Arbitrage was new: it was a way to use a “partially paid share” like a stock option – in the sense that if there was a difference between the partially paid share price and hte price of the equivalent stock option, you could arb between the two. The trade existed for exactly two months but made us about 10,000 rupees (5%) on an investment of about Rs. 200,000. It may still come back, so we’ll keep an eye out for it. Details on Slack.

We also closed the “Mad Momentum” portfolio which was too difficult to manage and stocks were falling in October. Here’s the summary of a one year mad run:

How We Have Done: The Performance of our Premium Stock Portfolios


Others: Large Cap and Fixed Income

We started a Long Term Large Cap portfolio last year in August, but that’s not done so well so far. But since it’s less than a year from inception, we don’t think it’s a useful thing to analyse so far. Results so far are a negative 2% since, but we think there’s more good things to come.

The fixed income portfolio saw a move to gilts in December. We’ll have a separate post on this, but the return since December 2018 (Six months) is a whopping 7.2% overall, which is healthy. More changes and instructions in a separate note.

Where we go next year

We’re going to restrain ourselves from creating a lot more portfolios this year, and focus on the ones we have. More stocks will go into some. The Large Cap portfolio will see a reassessment one year after inception. Buybacks will be actioned in the DivYield portfolio, and much more.

We have had a bad year on stocks- all the portfolios have suffered. But after three years of good performance we would expect to halt a little. But no worries – the coming year should be better!

Do connect on Slack (#helpdesk) if you have any questions, and if you’re not yet a subscriber, take a free trial now!