This page offers answers to the most frequent questions about the Capitalmind Momentum portfolio. Additional reading for those looking for the best momentum smallcase to invest in that will offer hopefully, a balanced perspective on the costs and risks involved.
The Capitalmind Momentum Portfolio
The Capitalmind Momentum Portfolio is one of the longest-running and most successful momentum portfolios. It recently completed three years of being listed on smallcase and continues to be one of the most popular smallcases on the platform in 2021. This page answers the most frequently asked questions about the Capitalmind Momentum portfolio, available as part of the Capitalmind Premium subscriptions or as a standalone subscription on smallcase.
The Capitalmind Momentum Portfolio holds up to 25 stocks selected on the basis of quantitative criteria, primarily price momentum, and reviews them weekly
What is the universe of stocks considered?
All NSE-listed stocks, meeting minimum criteria in daily traded volume and company market capitalization. This translates to nearly 90% of the total market cap trading in India.
How are stocks screened?
Our Quantitative model scores stocks based on a set of price and volume parameters. Stocks in the 90th percentile and above are candidates for inclusion in the portfolio. Stocks exit the portfolio in two scenarios, other stronger stocks emerge, or if existing stocks fail one of more criteria for retention in the portfolio
How are stocks weighted?
Stocks are weighted according to their rank and volatility compared to other candidates
How often is the portfolio rebalanced?
The portfolio is reviewed weekly and changes, if any, are communicated before market open on Friday. Our estimate in the past two years is approximately 20% of the portfolio changes each month (this can and does change depending on prevailing market volatility).
Doesn’t weekly rebalancing cause a high amount of portfolio churn?
Here, it’s important to make the distinction between portfolio reviews and rebalances. The Capitalmind Momentum portfolio is reviewed weekly but only the stocks that have been in the portfolio for atleast one month are considered for replacement. The exception to this is adverse stock-specific developments in which even the newer stocks are considered for replacement.
Some stocks in the portfolio are up a lot since the time they were added. Should I avoid them?
No. The momentum portfolio is meant to be bought as a portfolio and not as individual stocks. Stocks are retained in the portfolio until they lose momentum. If a stock that is up 100%+ and still continues to be in the portfolio continues to show momentum and so should be bought in the target weight along with the other stocks in the portfolio.
What is the likely tax impact on returns?
Momentum typically holds stocks for two to three months. Hence, most gains qualify as STCG (Short Term Capital Gains). Based on current taxation rules, assume 15% of portfolio gains will be paid as tax.
Hypothetical Taxation illustration: If the portfolio returns 25% in a financial year, the tax impact = 15% X 25% = 3.75% i.e. your after-tax return comes to 25% – 3.75% = 21.25%
Other costs to consider: Brokerage costs*, STT (Securities Transaction Tax) levied on every buy and sell, and DP charges. Assume another 1% of gains to be applicable for these costs.
* Brokerage costs vary depending on whether you use full-service brokers like ICICI Direct, HDFC Securities or low-cost / discount brokers like zerodha, upstoxx. We strongly recommend using a low-cost brokerage for investing in a momentum strategy given the significant difference in costs.
Should I invest lumpsum or SIP into the portfolio?
Since Momentum as a strategy reviews and rebalances frequently, an SIP versus a lumpsum approach do not make a difference. However, if you are new to the concept of momentum investing, you should start small and scale up over time as you get more comfortable with the strategy.
Let’s say you plan to invest ₹ 5L into the strategy but are unsure about investing all of it at once. You can start with ₹1L and add the remaining in similar increments over the next four months.
On smallcase, they have built logic that allows SIPs less than the portfolio minimum amount. Snapshot below is from the smallcase blog about the SIP logic and how it works.
Source: smallcase blog
The link to the blog post: New SIP Improvements. In a nutshell, smallcase SIP logic allows for lower minimum SIP amounts by buying a subset of stocks and not all stocks each time. Please note we have not reviewed how well it works in buying the portfolio.
How is the Momentum portfolio in the Capitalmind PMS different from the smallcase?
Key differences are:
- Do-it-yourself vs Do-it-for-me: In the PMS, the execution (buying, selling, performance-tracking and reporting) is all done by our systems and team.
- Execution flexibility: We have more flexibility in the PMS to buy or sell partially and to enter or exit gradually.
- Optimising execution: Also our buying and selling is done algorithmically, by slicing orders into small chunks and applying rules to either stop or reduce buying when stock price runs up intraday.
- No restrictions on lot size: The smallcase portfolio ‘minimum investment amount’ tends to be limited to 90k – 1L, while there is no such restriction since the minimum investment amount in the PMS is 50L. This means stocks which high unit prices e.g. TATAELXSI, PAGEIND can be added to the PMS when they meet the criteria, but not to the smallcase
For additional information, please fill out this form and our team will get in touch.
Is there a minimum investment amount suited for the Capitalmind Momentum smallcase?
There is no technical minimum that you can invest. However, you should care about the returns net of all costs. We wrote about things to consider when looking for the best smallcase to invest in. In short, the amount you pay should not exceed 3% of the total amount you invest. This means you should consider a target amount of ₹5L when investing in the Capitalmind Momentum smallcase. Even if you don’t invest it all at once, you should consider scaling up to that amount over a few months.
Is there a maximum investment amount suited for the Momentum portfolio?
There is no maximum amount for the Capitalmind Momentum Portfolio. However, there IS a maximum amount suited for the Capitalmind Momentum smallcase. The difference is the method of execution.
Because smallcase places market orders, and not limit orders, there is a real possibility of slippage negatively impacting the price at which you buy or sell, especially for large volume orders.
Think of a market order as saying “get me 10 shares of this stock at whatever is the available price”, while a limit order is like saying “get me 10 shares of this stock, but do not pay more than this price I specify”.
Execution slippage on smallcase can be a problem for large portfolios, i.e. where you buy / sell individual stocks worth 2-3L or more i.e. portfolio sizes greater than 20+ L could be susceptible to slippage impacts on smallcase.
If you intend to invest larger amounts, consider executing yourself using limit orders or for amounts > 50L, invest in the Capitalmind PMS Momentum Portfolio.
What returns can I expect from investing in Capitalmind Momentum?
Do not invest in Capitalmind Momentum without understanding that like any equity strategy, it will go through periods of underperformance. Such periods of underperformance can last for months at a time. So don’t be surprised to see negative returns a month or two after entering the strategy for the first time. Momentum investing is expected to outperform the index over the longer run and will certainly underperform from time to time.
If your expectations are to see 30%+ annual returns irrespective of broad market conditions, you will almost certainly be disappointed.
Read the review of the Capitalmind Portfolio performance in 2021
The performance of the Momentum Portfolio
On smallcase, I see more buys and sells than the stocks mentioned in the rebalance note. Why is that?
smallcase calculates the stocks to be bought and sold at the time you log in and click ‘Rebalance’. It uses the model portfolio weights uploaded the previous night to do this. As stock prices moves, smallcase generates buys and sells for every stock to get as close to the model portfolio as possible. This means you will often see very small buy and sell quantities for some stocks. This adds to transaction costs. To prevent this, we recommend customising the rebalance to remove those small buys and sells. Please read the post below for the details:
How smallcase users can save on transaction costs
My smallcase investment is down in the last 1 week / 1 month / 3 months – Can I get a refund?
No, there are no refunds. Equity strategies are risky and will see drawdowns from time to time and only make sense if you can stay invested over the long term. If you can not tolerate drawdowns, do not invest in this smallcase.
Please make sure to read:
Looking for the best smallcase to invest in 2022? Five things to consider
The Five perils of momentum investing you cannot ignore
We publish monthly fact-sheets of Momentum portfolio performance. Here are links to the 2021 factsheets:
Read all Capitalmind Momentum Factsheets
2021 Full Year Review Capitalmind Momentum Review
How can I invest in the Capitalmind Momentum Portfolio?
There are two ways to invest in the Capitalmind Momentum Portfolio
- Option 1 to invest in Capitalmind Momentum Portfolio: By subscribing to Capitalmind Premium: This is our flagship subscription offering with over 1,400 members. Members get access to four model portfolios including the Capitalmind Momentum portfolio, actionable strategies, premium research, and the Capitalmind slack forum.
Sign up for Capitalmind Premium here
- Option 2 to invest in Capitalmind Momentum Portfolio: By subscribing to the Capitalmind Momentum smallcase: Subscribing to the smallcase gives access to the momentum smallcase only and not the other portfolios or features included in Capitalmind Premium.
Subscribe to the Capitalmind Momentum smallcase here
Important Note: The Capitalmind Premium subscription includes the Momentum portfolio, but does not include access to the smallcase. Members can choose to execute directly in their trading accounts or create and manage their own smallcase manually.
We also offer the Momentum Strategy in the Capitalmind Wealth PMS. Note the SEBI-mandated minimum ticket size is INR 50L. Connect with us @capitalmind_in or write to premium [at] capitalmind [dot] in to have our team get in touch.
More about Momentum as an investment strategy
Momentum is a rule-based investing system that buys and sells based upon past returns. Momentum investors buy outperforming securities and avoid – or sell short – underperforming ones.
Understanding Momentum Investing: A compendium of the best research on Momentum
For further questions about the Capitalmind Momentum Portfolio, write to us at premium [at] capitalmind [dot] in or on twitter @capitalmind_in
How to implement changes in the momentum portfolio
The Momentum portfolio gets reviewed weekly and stocks that have spent more than 1 month in the portfolio get rebalanced.
The update is shared with Premium subscribers in two ways:
- Update on the slack #actionable channel acccessible to Capitalmind Premium subscribers
- Email update with the details goes out the previous evening
For queries, reach out to us on #helpdesk (Capitalmind Premium users). Else reach out to us on email premium [at] capitalmind [dot] in.