Capitalmind subscribers get access to five core portfolios (three equity, one debt, and one index+futures strategy). Each one is designed for distinct risk-return profiles and plays a role in an individual’s asset allocation framework.
In this post, we summarise the performance of the portfolios and other short-term ideas we closed in 2020, and a limited time offer for new subscribers.
CM Passive Strategy in 2020
CM Passive Strategy is a low churn ETF portfolio which invests in Top 100 Indian companies & Top 100 US Tech giants.
Our research had shown that most of the mutual funds underperform the simple index combination of Nifty 50, Nifty Next 50, Nasdaq 100.
2020 Performance Summary:
Our Passive Strategy portfolio is up by 21.7% in 2020 outperforming its benchmark Nifty 50 by 7.5%. Nasdaq 100 has been the best contributor with 39.46% followed by Nifty Next 50 15.81% & Nifty 50 14.9%.
Chart shows the cumulative performance of CM Passive Strategy vis-a-vis Nifty 50 for the year 2020.
Points to consider before investing:
- Best suitable for SIP investors & who wants to buy the market at regular intervals.
- Provides an international equity exposure to your portfolio and a hedge against rupee.
- Passive strategy which majority of actively managed portfolios.
- Low Churn & Low Cost.
CM Momentum Portfolio in 2020
Investment Philosophy: Stocks that have gone up, tend to keep going up for some time. Buy a rule-based basket of stocks (or assets) showing strongest relative price momentum, hold the winners, prune the losers at periodic rebalances.
In addition to price momentum, our implementation has medium-term and near-term price and volume signals to protect against deep drawdowns.
2020 Performance Summary:
Chart shows cumulative NAV chart for Momentum versus the CNX 500 and the NIFTY. Dividends have not been considered.
Simply put, how would ₹ 100 invested on Jan 1st have done through the calendar year.
For the year, CM Momentum would be worth₹164 while the NIFTY and CNX 500 would be worth₹117 and₹115 respectively.
March 23rd 2020 was the bottom for the year. On that day, Momentum was down 19% from its 2020 peak compared to a 38% decline for the benchmark NIFTY and CNX 500.
Chart show month-wise returns from CM Momentum compared with the CNX 500 and the NIFTY.
click to enlarge
Momentum underperformed the NIFTY in five of the 12 months in 2020, but beat the benchmarks by a wide margin.
Table shows overall summary for 2020.
Performance since launch:
Points to consider before investing:
- CM Momentum is rule-based, and considers mainly price and volume to identify stocks
- Believes price leads fundamentals i.e. prices start moving before the underlying reason becomes apparent
- Can be high-churn as stocks that lose momentum are replaced
- Does not get out at the top or get in at the bottom – The nature of investing based on price momentum means it waits for a reversal before exiting
- Underperforms the broader market for periods of time, potentially months at a time
CM Chase in 2020
Investment Philosophy:
Market Indices tend to trend in certain time windows, i.e. if the market starts going up, it typically keeps going up for a few weeks, likewise, if it goes down it continues to go down for sometime. CM Chase quantitatively tracks this change in trend, and takes a long or a short position accordingly.
This long-short strategy uses Index Futures layered on top of an Index investment. It’s designed to capture week long index trends, you can run it as a strategy by itself, or use it to hedge your existing equity investments on the downside and an alpha generator on the upside.
It is a fairly active strategy and requires you to action orders almost on a daily basis.
2020 Performance Summary:
Chart shows cumulative NAV chart for CM Chase versus NIFTY. Dividends have not been considered.
Simply put, ₹ 100 invested on Jan 1st have done through the calendar year.
For the year, CM Chase would be worth ₹157 while the NIFTY ₹115.
March 23rd 2020 was the low for the year. On that day, Chase was down 1.41% from its 2020 peak compared to a 38.40% decline for the benchmark NIFTY.
The lowest drawdown from its peak on Chase was 8.73% for 2020.
Chart show month-wise returns of CM Chase compared with NIFTY.
Chase outperformed the NIFTY month on month all through the year except for the month of May, and beat the benchmarks by a wide margin.
Table shows overall summary for 2020
Performance since inception
Points to consider before investing:
- CM Chase is a quantitative long-short trend following strategy layered on an index investment
- At the moment the strategy approximately requires a minimum investment of Rs. 10,65,000
- It follows a conditional leverage approach – at max we are levered 2x only on the upside.
- The strategy being quantitative does not involve any discretion and at times may seem counterintuitive.
- There are periods of very high activity followed by periods low activity
- During low volatility and choppy market regimes the strategy can underperform.
- Using derivatives has certain tax implications which you may want to consider.
- Though minimal, the strategy does have leverage risk.
CM LT Multicap Portfolio in 2020
The Capitalmind Long Term Multi-cap portfolio is designed to generate wealth for the investors over the long term by investing in market leaders across sectors. We look out for companies that are growing, management interest aligned with shareholders with good corporate governance. We like market leaders that are gaining market share, strong or improving balance sheets and with a growth visibility over the next 3-5 years.
2020 Performance Summary:
It has been a spectacular year. We had witnessed the 6 year low & All time high on Nifty in the span of 8 months. Our companies are getting back to pre-covid earnings. They are in growth trajectory for the next 2-3 years. We are positioned ourselves into IT, Auto & auto ancillary, Chemicals, Consumption to benefit the visible uptick in these sectors.
Chart shows the cumulative performance of LT Multicap vis-a-vis Nifty 50 for the year 2020.
Rs 100/- invested at the start of the year would have become Rs 115.5/- matching the Nifty returns.
Points to consider before investing:
- LT Multicap is a low churn portfolio designed to create wealth over the long term.
- We do not deviate from our core philosophy of long term investing for short term spurts.
- We stay away from cyclicals, companies with management integrity issues, and stressed balance sheets.
- Suitable for long-term investors who can tolerate moderate to high risk
CM Fixed Income Portfolio in 2020
The idea of having a fixed income allocation is to both asset allocation (different asset class from equity) and risk mitigation (fixed income is lower volatility than stocks). Our fixed income strategy typically focuses on what is the best way to participate in the fixed income asset class, without taking on too much credit risk of defaults. It also attempts to use the interest rate cycle appropriately using our macro analysis.
For 2021, we had to be super-nimble, since the Covid-19 lockdowns seriously impacted fixed income. Our focus on the Macro ensured that we did not see a major impact of the crisis, and moved very fast into less risky instruments. At the same time, we received excellent benefits from our focus on the rate curve – that rates would fall, and they did.
The fixed income portfolio has a return of 10.19% for 2020.
This was a tough year:
- We had a Franklin fund (Ultra Short Bond) which we exited in time in March 2020, going to more safety (Link)
- The interest rate scare in August and our reorganization into liquids (Link)
- How RBI took Liquid Funds to Hell and our response (Link)
Despite the damage we seem to have come out okay.
Points to consider before investing:
- This strategy isn’t optimized for tax, so you might have some taxes to pay. We recommend Loss harvesting (booking losses and reentering) or Bonus Stripping (Link) to reduce the tax impact.
- There aren’t too many changes, but we tend to re-look at the landscape when the facts change.
- This can be entered, with a lumpsum or SIP, at any time.
- Risk exists in different ways, so please don’t consider this a “safe” strategy. It’s done well, but that’s hindsight.
CM Experimentals: Short-term Ideas
The concept of experimentals is to either take advantage of a short term opportunity that will give us better returns than fixed income, to bet on a stock or concept that doesn’t work in the long term portfolio, or to use options or arbitrage to spruce up returns. We have a bunch of interesting things that we keep doing, and this is in #experimentals in our Premium Slack Channel (subscribers only). Examples:
- An IDFC experimental where we did 50% in a few months (Read post).
- A Reliance-PP trade for 3.6% in a week, and a POWERINDIA trade that was 2.5% in two months. (Read post)
- Earlier in the year, we had one in Franklin’s Ultra Short Bond Fund, for 5% in 6 days. (Read post)
- Last year, an IPAPPM trade for 7% in about two months (Read post)
All at https://premium.capitalmind.in/tag/experimentals/.
If you’re new: Such strategies will come often, but not be visible all the time. Consider them risky – even if recent strategies have resulted in no price damage. Also, note that you may need different amounts of capital for this, apart from the regular strategies.
These can be really rewarding, even for the risk. Our return analysis shows an ROI that’s very high, for a relatively high hit-rate. In fact we did not lose money on any experimental in 2020.
For 2021: There will be opportunities in buybacks, and possibly in other short term opportunities.
The Bottomline
A Capitalmind Premium subscription offers access to premium research articles, a vibrant subscriber community that discusses all things money, and of course, Capitalmind model portfolios.
Let’s say you completely discounted the first two, and only considered returns from investing in Capitalmind Equity and Equity-adjacent Model Portfolios.
Here’s a quick calculation of the gain from investing the minimum amounts in the portfolios. Of course, you could have invested that same amount in an index fund and not gone to any of the trouble. The last column in the table below shows the excess return over doing just that.
The above calculation does not include the CM Fixed Income which is a portfolio of debt mutual funds that serves as a low-risk diversification portfolio.
That’s not all. Table below shows the return from experimentals that were initiated and closed in 2020.
Gain from investing the minimum amount in the portfolios and experimentals comes to ~₹5.5L. How’s that for ROI.
Of course, past returns are not indicative of future returns. 2021 might look very different from 2020. In a good way, or a bad way. As always, the Capitalmind team will be hard at work, trying to unearth active investing opportunities, in the portfolios, and in experimentals.
If you’re looking to get organised in how you think about managing your money, join Capitalmind Premium.
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