The Capitalmind Momentum Portfolio
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 Monday (or first trading day of the week). 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).
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.
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 likely be disappointed.
The performance of the Momentum Portfolio as of [July 2021]
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: Five things to consider before subscribing to a smallcase
We publish monthly fact-sheets of Momentum portfolio performance. Here are notes from the last six months:
June 2021 A rollercoaster June, a late surge and a reminder [link]
May 2021 What sell in May and go away? [link]
Apr 2021 A strong start to the financial year as large caps make way [link]
Mar 2021 A rollicking end to the financial year but markets send mixed signals [link]
Feb 2021 Momentum Portfolio Performance Review [link]
Jan 2021 Momentum Portfolio Performance Review [link]
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.
The persistence of the Momentum factor has been well-document in international markets. Two papers that offer a starting perspective into momentum investing:
Returns to Buying Winners and Selling Losers – Implication to Stock Market Efficiency [1993, Journal of Finance, Jegadeesh, Titman]
Fact, Fiction, and Momentum Investing [2014, Journal of Portfolio Management, Assness, Frazzini, Israel, Moskowitz]
Our research into Momentum strategies in Indian Markets
Read our SSRN whitepaper: Does Momentum Investing work in Indian Markets? [link]
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 rebalanced at least once a month (sometimes more often depending on market conditions)
The update is shared with Premium subscribers in two ways:
- Update on the slack #actionable channel
- Email update accompanying a premium post on capitalmind.in
Both of these happen at the same time, so there’s no lag in one versus the other
You can implement the change (fresh buys or rebalance) in three ways:
- Manually put BUY and SELL orders through your trading account
- Use the kite cart (zerodha customers only) that enables placing Buy and Sell orders together. See here how kite cart works.
- Sign up for the Momentum Smallcase here. Read this to know how smallcase works. – There is a fee you directly pay on smallcase
For queries, reach out to us on #helpdesk (Capitalmind Premium users). Else reach out to us on email premium [at] capitalmind [dot] in.