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CM Strategy

Quietly positive September amidst global rumbles

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Sep 2021 Monthly Update for the Capitalmind Momentum Portfolio

The Capitalmind Premium Momentum portfolio had a positive month with +1.7% but underperformed versus the NIFTY +2.8% and CNX500 +3.4%. In contrast to the previous month, large caps lost some steam as the month progressed, but mid-caps seem to get a second wind. 

Read on for the September 2021 wrap-up.


Capitalmind Premium Momentum Portfolio Performance since inception

The chart shows performance (annualized returns, annualized volatility, and maximum drawdown from peak) since inception in January 2019.

Reading this chart: Annualised Returns, higher the better (obviously), Volatility: lower the better, and Maximum Drawdown: measured as falls from the previous peak, lesser the better, i.e. the smallest negative value, the best possible value is zero only possible for FDs.

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 even with adjustment for realistic returns, it has comfortably outpaced the benchmarks with lower volatility.

Sep 2021 Returns Update

The chart shows Capitalmind Momentum smallcase returns versus the NIFTY 50 and the CNX 500.

Capitalmind Momentum was up +1.7% for September. In twitter-screenshot-speak, we could say +22.4% annualized if annualizing short-duration performance of equity strategies was not a crime against logic. But a reasonable standalone month still looks poor compared to +3.4% for the CNX500 and +2.8% for the NIFTY50. And this is after an August where CM Momentum was down -2.5% while the benchmarks had blockbuster months with NIFTY +8.7% and CNX500 +6.5%.

Clearly, no one is impressed with less than an ideal couple of months.

We’d love to be ahead of the benchmarks every single month. Really, we would. Also, we’d like to say we do not have any down months, ever. But then we’d have to change our name to Madoff & Co or some localized variant. Given the hassle of changing names, let’s zoom out for some perspective.

The table below shows month-wise returns over the last 12 months.

Clearly, markets have delivered supernormal returns over the last 12 months. What a time to be an equity investor!

Grey-shaded rows were the months when Capitalmind Momentum underperformed CNX 500 or the NIFTY 50, whichever did better that month.

CM Momentum is market-cap and sector agnostic and is the furthest thing from an index-hugging strategy. This also means its point-to-point returns will vary, significantly sometimes, from the Nifty50. Remember, seven stocks, Reliance, HDFC Bank, HDFC Ltd, Infosys, ICICI Bank, TCS, Kotak Mahindra Bank, together determine 50% of the NIFTY’s movements.  Another 16 stocks account for another 30% of the NIFTY’s movement, making it 23 stocks accounting for 80% of the NIFTY’s returns. This means an equity strategy that does not own these in those proportions will behave differently from the NIFTY 50, sometimes for the better, sometimes for the worse.

Points to consider from the table above:

  • CM Momentum underperformed the benchmarks in 5 of the last 12 months; that’s almost half the time!
  • There was a 3 month-stretch of underperformance from Oct ’20 to Dec ’20, one of which where Momentum was negative while the indices were not, and one month where the indices were up double-digits, and the CM Momentum was up only a quarter of that.

Look at it this way: ₹100 invested on the last day of September 2020 would be worth ₹112 four months later, at the end of Jan 2021. In comparison, the NIFTY 50 investor would have ₹121, that’s 80% higher gains. In the subsequent four months though that ₹112 in the CM Momentum becomes ₹177.5 while the NIFTY ₹121 becomes ₹138.

The point isn’t the absolute returns in the above example, which are not indicative of any 8-month stretch. CM Momentum’s potential for outperforming the index is not day-to-day or even a month-to-month but over longer stretches of time.

Both under and outperformance can be lumpy, with stretches of both, which we know based on the more distant past, can last for a year and even more. And since we can’t predict when so-called outperformance or underperformance will occur, the only way to partake of the momentum factor’s potential is to stay allocated.

 Of course, that’s not easy. If you find the discipline of staying put hard to find, talk to us about our PMS, Capitalmind Wealth, which offers a momentum strategy built on the same principles, but with a few differences.

Outlook for October

Evergrande bankruptcy, US Debt Ceiling standoff, European Gas prices through the roof, Power outages in China.

A lot is happening worldwide as we head to the end of the first week of October. Usually, in fragile markets, any one of those is enough to spark sell-offs. And yet, Indian markets have been sanguine.

The China power situation has even lit rockets under some Indian chemical stocks, expected to benefit from Chinese factories being out of action. PSUs, especially those in the Oil & Gas business, have looked strong. If someone had said back in Jan 2020 that China would have power shortages and that would be one of the variables impacting stock prices in India, you’d ask what they’re smoking. Yet, here we are, in Oct 2021, looking at just that.

Will Indian markets continue to skip along while other markets continue to stutter? Or will other markets also shrug off these concerns as temporary and continue merrily upward?

You guessed it; we don’t know.  We’re still fully allocated, for now. Let’s see how October unfolds.

Capitalmind Momentum smallcase by Capitalmind

Further Reading:

All Past Momentum Factsheets: Capitalmind Momentum Factsheets

Frequently asked questions about the Capitalmind Momentum Portfolio

Five perils of momentum investing you cannot ignore

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