- Wealth PMS (50L+)
March 2021 Monthly Update for the Capitalmind Momentum Portfolio
In February 2021, almost all stocks were strong, and momentum went along for the ride. That changed in March. The breadth of stocks showing positive momentum shrank through the course of the month, with 3 out 5 stocks in the CNX 500 ending down in March. The broader market was up +1.1% since Feb. Capitalmind Momentum however, had a strong month with a +13.6% gain. Read on for the March 2021 summary.
Chart shows performance (annualized returns, annualized volatility, and maximum drawdown from peak) since inception in January 2019.
Reading this chart: Returns, higher the better (obviously), Volatility: lower the better, and Maximum Drawdown: measured as falls from previous peak, lesser the better, i.e. the smallest negative value, the best possible value is zero.
The Momentum portfolio tries to outperform the NIFTY while suffering lower drawdowns in corrections. The smallcase version of the portfolio has been live since Jan 2019 and has comfortably outpaced the benchmarks with lower volatility.
Chart shows Capitalmind Momentum Model Portfolio returns versus the NIFTY 50 and the CNX 500. Dividends have not been considered.
In February 2021, almost all stocks were strong, and momentum went along for the ride. That changed in March. The breadth of stocks showing positive momentum shrank through the course of the month.
Chart below shows sector-wise view in the CNX 500 over the last 1 month, 6 months, and 1 year. Note, except the CNX 500, the returns are median and not market-cap weighted returns.
If you go back 1 year, almost every stock has gained. Not surprising given markets bottomed out on March 23rd, 2020. In March, 3 out of every 5 stocks were down. Meanwhile, stocks in the momentum portfolio did reasonably well, which has been a handy testimonial to philosophy of picking stocks showing price momentum combined with near-term price and volume conditions.
After a quiet February where we did not make any changes, in March we exit 8 positions and replaced them with 4, including a partial allocation to cash.
Chart depicts the exits on a return versus time held matrix. The greens were exit at a profit, reds at a loss. Size of the bubble represents relative gain or loss on the position.
Current Portfolio: Chart shows current positions with exits and fresh entries. Stock numbers indicate the order in which they were added to the portfolio. The March 1st additions are denoted as “New Entry”. The dark green dots show % return since entry into the portfolio (vertical line at zero).
We progressively reduced equities in the latter half of March. Our cash allocation is only 15% as of writing this because markets seem undecided. This does not mean we think the market is about to tank, just that we saw some stocks lose steam and not enough other stocks made a case to replace them.
Our bias is towards protecting against the downside as much as we can at the cost of giving up a few percentage points of gain. If markets go back to a definite upward trend, we’ll go back to 100% equities without hesitation because no egos are at risk when we reverse positions.
A great month relative-performance-wise is also a good time as a reminder that our momentum strategy can and will underperform at times.
Chart shows 1-year rolling return of CM Momentum compared with the NIFTY and CNX 500 over three years since Jan 2018.
The shaded region shows the time for most of which momentum trailed the higher of NIFTY and CNX 500 on 1-year return. That period stretches from Oct 2018 to Jan 2020, long enough for a lot of folks to give up on the whole “buy stocks that have been going up” philosophy.
Yes, we keep tweaking our rules but like any active strategy, momentum will only make what the market lets it. And sometimes, the market is not forthcoming. This means our momentum strategy will definitely underperform for periods of time. Our endeavour will always be to try and minimise the length and depth of that underperformance.
If you have questions about our momentum portfolio, this page should help.
For any further questions, write to us at premium [at] capitalmind [dot] in or on twitter @capitalmind_in