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CM Strategy

Momentum Monthly Fact Sheet: Sep 2020


Introductory Note: Starting this month, we plan to publish monthly fact sheets of the three key equity-related Capitalmind strategies; Long Term Multicap, Momentum, and Chase. Our objective is to offer a concise summary of how the portfolio has done in the last month, highlight relevant updates, and offer more insight into how the portfolio / strategy is managed. We’ll refine the content based on feedback from the Premium community. Here’s the first portfolio fact sheet summarising September performance.

September 2020 Monthly Update for the Capitalmind Momentum Portfolio

Monthly Returns Update

Chart shows Capitalmind Momentum Model Portfolio returns versus the NIFTY 50 and the NIFTY Smallcap 100 (the comparison that appears on smallcase). Dividends have not been considered.

Momentum Monthly Fact Sheet: Sep 2020

Quick note about Model vs Actual portfolio performance: Because of how smallcase calculates portfolio NAV, which we think takes closing prices of the previous day when considering buy and sell prices, actual returns will vary from the numbers in the chart above. In some cases actual performance could be worse than Model portfolio, in some cases better, the difference being the prices at the time of execution. The important thing is that they track the model portfolio more-or-less, and deliver on the objective of beating the index by a handy margin post transaction and tax impact.

Except on a rolling 6 month view, the Momentum portfolio has outperformed the two reference indices by a healthy margin.

Performance since inception

Chart shows performance (annualised returns, annualised volatility and maximum drawdown from peak) since inception in January 2019.

Momentum Monthly Fact Sheet: Sep 2020

Our objective with the Momentum strategy is to deliver index+ returns with lower volatility and to try and limit sharp drawdowns. This also means we could and do underperform the index for months at a time in certain market conditions when enough opportunities do not present themselves.

Summary of Sep 2020 Activity

It was a busy month. We closed 22 positions (including exits and reductions) this month.

  • Five positions delivered over 50% absolute return
  • Ten closed in the red, including our Gold position taken over a month ago. The deepest red were COSMOFILMS (-14%), VSTTILLERS (-12%), and TIINDIA (-7%)
  • Seven delivered between 0 and 50%

Chart below shows these positions on holding period (x-axis) versus returns realised (y-axis). The size of the bubble depicts the relative realised return in ₹ terms. Red bubbles were realised losses. Also note these also include positions reduced to bring their weights to within portfolio rules.

Momentum Monthly Fact Sheet: Sep 2020

A key part of downside protection is to exit stocks in the red before they inflict too much damage to the portfolio. At the same time, to give them enough time to confirm or disprove their positive momentum.

The ideal Momentum chart will have a 50-50 split between number of red and green bubbles but the size of the red bubbles will be much smaller than the green. And of course,  the green bubbles should get bigger and rise to the top as they move to the right of the chart.

Open Positions

Chart shows a snapshot of open positions as of the end of September.

The dashed blue line is the Buy price for each stock and the dark green dot is where the stock last closed. The grey shaded region is the range between the 52 week low and high.

For example, GRANULES is currently a little over 60% above when we added it to the portfolio i.e. ~60% unrealised gain. It closed not far below its 52 week high, and its 52 week low is 60% below our buy price. The newer additions to the portfolio are close to their buy price, with some of them negative as of now.

Momentum Monthly Fact Sheet: Sep 2020

Note: these positions are a point-in-time snapshot and will change as we do our weekly review and rebalance

The cash component of the portfolio (LIQUIDBEES), which we added in late September shows with all dots overlapping each other and the buy price. i.e. zero return.

Outlook for October

Unlike in July and most of August where stocks showed strong and secular momentum, heading into October, they seem undecided. We do not know if this implies that they have run out of steam and will reverse course sharply or just bounce around a narrow range at current levels for a while before taking cues from whatever stocks take cues from. Could be US Elections, Border tensions, Economic data, and a host of other reasons we have no clue about. As always, we won’t try and predict but will stay nimble.

Relevant Links:

CM Momentum Portfolio Page

CM Momentum on smallcase

Mid-year Performance Review

This article is for informational purposes. No stock mentioned in this post is an individual buy or sell recommendation. Momentum is a portfolio strategy that enters and exits a set of stocks based on rules. It can also be volatile in certain circumstances. Make sure to do your own diligence before investing in such a strategy.

For access to premium research, model portfolios and the vibrant member forum, you can subscribe to Capitalmind Premium here. Use coupon code FRESHBREW to get 20% off regular price. Valid till midnight, 4th Oct.