- Wealth PMS (50L+)
Quarter and March review of the Capitalmind Momentum Portfolio
After a poor first two months of the calendar year 2022, the Capitalmind Momentum Portfolio had a decent March with +6% (NIFTY +4%). The March recovery means we’re still down -5% over the first three months of 2022; the NIFTY is marginally up at +0.6% over the same period. CM Momentum closed FY2022 at a respectable +33% while the NIFTY did +19%.
If you had come out of three months of Vipassana where you had no contact with the outside world, and a friend told you here’s what’s been up with the world in the time you’ve been gone:
Inflation continues to soar across the world as central banks, after much dithering, have started to raise rates. Supply chains continue to be stretched thus not helping with prices. The third wave of Covid peaked across the world in Jan 2022 at about 3.36 Million a day, and is only now down by half but still at a worrying 1.5M cases/day. India happily is down to just over 1,000 cases a day, a 99% reduction from the January peak.
As you’re trying to process this and wondering, in a detached sense of course, what this might have meant for your investment portfolio, your friend continues…
Oh, and Russia invaded Ukraine and is currently involved in military combat. And the world (read western powers), after much clutching of pearls and murmurs of World War III, imposed unprecedented financial and trade sanctions, even freezing half of its global reserves to penalise Russia for its impunity. To which, Russia, the 2nd biggest producer of natural gas among other essential commodities, and Europe’s biggest supplier, has threatened to stop supplies unless paid in its currency.
You’re thinking, good thing your three months of meditation prepared you “to face life’s tensions in a calm, balanced way” before you check your portfolio.
But you needn’t have braced.
The chart shows Capitalmind Momentum smallcase returns versus the NIFTY 50 and the CNX 500.
Note the two lines for CM Momentum performance; one is the NAV reported by smallcase here and available for download. The other is our internally maintained system for calculation which assumes entries and exits happen at the close price of the day the rebalance is effective. We believe this is a more conservative estimate of performance, so we’ve started reporting both in Dec 2021.
Back in Jan 2020, when the first Covid cases were being reported, we wrote a short post on how markets don’t care about human suffering. That proved uncannily right as first and then the second wave roiled lives even as stock prices surged.
Markets have been circumspect in the face of the current crisis, weakening substantially in February before getting back to their merry ways in March.
Broad Market Indices are flat for the year; CM Momentum is down 5%.
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 Fixed Deposits.
The Momentum portfolio tries to outperform the NIFTY while (hopefully) suffering lower drawdowns in deep corrections. The smallcase version of the portfolio has been live since Jan 2019, and even with adjustment for realistic returns, as shown by the CM NAV metrics, it has comfortably outpaced the benchmarks with lower volatility.
Another way to visualise performance is on a rolling return basis. By not looking at returns between two cherry-picked dates, rolling returns show returns at any given point for a set time period in the past. The chart below shows the one-year return from Jan 2020 (since the smallcase went live in Jan 2019, Jan 2020 is the earliest an investor would have completed one year).
If the green CM Nav line more or less consistently stays above the grey Nifty and CNX500 lines, it will have done quite well. But a variant of an old saying applies: Man plans, the markets laugh. So that green line will invariably, at times, dip below the grey line for periods of time. We hope never for too long.
The table shows monthly NIFTY Total Returns.
After a good March and a good start to April, the index is now up 2%.
The macro factors mentioned earlier still apply. Yet, some parts of the market, especially small caps, have been looking relatively strong. Hotels and Restaurants, Paper, Chemicals, select mid-cap IT, to name a few, have looked particularly strong.
The damndest thing about prices is how they often start to move in advance of what’s coming. The chart below is an example of a stock that entered the portfolio on the back of relatively strong momentum in an otherwise weak market. A few days later, Russia invaded Ukraine. As Russia gets hit with sanctions, a lot of global capacity, which happens to be in Russia, will not be available to satisfy global demand, putting this company in the enviable position of being in a sellers’ market, albeit temporarily.
Of course, not every stock responds in this fashion, so we pick a set of stocks meeting quantitative criteria. The hypothesis is that some of those will deliver outsized returns to pull up the overall portfolio performance above the broad market.
We have progressively reduced cash in the portfolio over the last month. As of writing this, I’d say we’re “cautiously optimistic”, a masterpiece phrase that says nothing, the alternatives being “recklessly optimistic” or “cautiously pessimistic”, which don’t sound as wise.
Here’s to trying and being more regular with updates on the portfolio. And of course, to the momentum portfolio building on the mojo, it seems, maybe, probably, might have rediscovered in the last month. 🤞🏼
All Past Momentum Factsheets: Capitalmind Momentum Factsheets
Investing in the best smallcase in 2022: Five things to consider
Frequently asked questions about the Capitalmind Momentum Portfolio
smallcase review: Five perils of momentum investing you cannot ignore