- Wealth PMS (50L+)
Capitalmind Chase is a Systematic (rule-based) Trend-Following Strategy that combines holding the NIFTY with directional (long-short) positions in NIFTY Futures aimed at market+ risk-adjusted returns across market cycles
Read on for an overview of the strategy, as to who should and should NOT trade this strategy.
Historically the strategy has outperformed a NIFTY Buy & Hold strategy by a considerable margin.
Capitalmind Chase has delivered an annualized return of 39.43 %, while a buy and hold on NIFTY delivered close to 11.54% since 2008. This is as of Dec’21.
2021 has been a challenging year for trend-following strategies, CM Chase returns stand at 25.52 % vs. 22.73% of NIFTY.
To get a better sense of how the strategy performs on an EOD basis and across market regimes, we compare daily CM Chase NAV with that of a NIFTY Index ETF.
As visible from the chart, the strategy protects on the downside and offers alpha on the upside. Even on the 23rd of March’20 when NIFTY recorded its low of the year down almost 36% from the beginning of the year, CM Chase was still up 6% at that point.
The way to read this chart is – ₹ 100 invested in Chase would have given you ₹ 125.52 by end of 2021 while NIFTY ETF would have given you ₹122.72. Comparatively, 2020 delivered a stupendous performance.
Here’s the performance chart for Capitalmind Case compared with NIFTY and the Futures only component since 2008.
Interpreting the values in the chart
You will notice, in any of the past 14 years, Capitalmind Chase has done better than NIFTY. In essence, we expect to beat NIFTY returns through this strategy.
This strategy is ideally suited for investors and traders who can afford to be moderately active in the markets. You do not have to be glued to the markets though. You should have a fair understanding of Index futures as a product and the inherent risks that come with it. On average, there would be 5 to 6 trades a month and you would need to have access to your trading account during the day when the trades are actioned.
If you are already invested in the markets through Index Mutual funds or have investments in Large-cap stocks, this strategy works as an ideal hedge.
If you are new to futures/derivatives trading and do not understand the inherent risks in trading leveraged products.
If you want to trade only parts of this strategy by using broker or exchange provided leverage.
If you cannot be active during market hours to execute the trades.
The strategy is based on the concept of Trend Following, we’ve done a series of posts on this. You can start with the first one here.
All Capitalmind Premium subscribers get access to the Premium slack forum where any actions on our portfolios and strategies are shared. You would receive the Buy / Sell signals on the Capitalmind Slack platform. You can set up notifications to receive specific alerts. Note: We do not send SMS updates.
You would need a minimum of Rs. 9,00,000 (approx) to trade this strategy. You can arrive at it by multiplying the NIFTY Futures lot size by the Current NIFTY Spot value (50 * 17400 = Rs. 10,65,000). As of Sep’21
The minimum capital required for the strategy will vary depending on the value of NIFTY Spot on the day when you intend to start trading this strategy. All you need to do is, use this formula (NIFTY Futures Lot Size * (Current value of NIFTY Spot)) to arrive at the minimum capital required for this strategy.
The worst that can happen while you are in the trade, is an index circuit against you, which can be at a max of 20% on a given day, since we are not using any leverage it would mean a 20% hit on the notional equivalent capital, 2x if it happens when the system is long. Something that has never happened in the past 12 years though.
Of the 17 Crashes in the past 12 years, a crash defined as a greater than 2% fall intraday on NIFTY, CM Chase was Short ahead of it 16 times.
The strategy has delivered positive returns over the past 12 years with a decent Sharpe ratio of 1.77.
Of course, past performance is no guarantee of future results.
Risk warning and disclosure
There are special risks associated with an investment in futures including market price fluctuation, leverage risk, liquidity risk, economic changes, and the impact of adverse, political, geological, or financial factors. No investment/trading strategy can guarantee performance results. Past performance is no guarantee of future results. All investments are subject to a multitude of risks, including loss of principal invested.
1 The system follows a conditional leverage approach, the position is levered 2x on the upside and is not levered on the downside.
For further questions about the Capitalmind Chase, write to us at premium [at] capitalmind [dot] in or on twitter @capitalmind_in
To get access to Capitalmind Chase, and to our other model portfolios and slack access, subscribe to Premium. For a limited-time discount, use Coupon Code NEW2021 on the annual plan.