July 2021 Monthly Update for the Capitalmind Momentum Portfolio
A good month for the Capitalmind Momentum portfolio, up ~9% compared to 0.3% for the NIFTY and 1.4% for the CNX500. Starring a stock that ran up 50+% in the first half then turned around and fell 17% in the second, and one we continue to hold.
Read on for the July 2021 wrap-up.
Capitalmind Momentum Portfolio Performance since inception
Chart shows performance (annualized returns, annualized volatility, and maximum drawdown from peak) since inception in January 2019.
Reading this chart: Returns, higher the better (obviously), Volatility: lower the better, and Maximum Drawdown: measured as falls from 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, has comfortably outpaced the benchmarks with lower volatility.
July 2021 Returns Update
Chart shows Capitalmind Momentum smallcase returns versus the NIFTY 50 and the CNX 500.
It’s one of those phases in equity markets, where monthly returns from a section of stocks exceed the annual return on fixed deposits. Remember we talked about how because of the way smallcase calculates NAVs, actual investor returns are almost certain to be lower than the numbers here.
The comparison against the marketcap weighted NIFTY looks like a no-contest because like we mentioned in the May 2021 Momentum Update that its been the mid and smallcaps showing momentum over the last couple of months.
Chart below shows how that trend of the smaller caps outperforming continued in July.
Chart shows the market cap distribution of the current Capitalmind Momentum portfolio.
Why do we not benchmark against the smallcap index instead of the NIFTY and the CNX500? For the same reason that we did not benchmark against the CNX Pharma index in August 2020 when the portfolio had a number of pharma stocks or the CNX Metals index in November 2020 when it had three steel and aluminum large-cap stocks counting for a significant part of the portfolio by weight.
Since the strategy is market cap and sector agnostic, it (tries to) hold stocks from the slivers of the market showing proven momentum at the time. Having said that, a comparison against the prevailing dominant index would offer a sense of whether the stocks being picked add anything additional over just picking the broad index of the same theme.
July also saw excitement with one of the portfolio holdings.
CDSL July chart
The stock ran up over 50% in the first half of July, then got added to something called an ASM list, and promptly fell 17% in the next week. We sent out a detailed email to our premium and smallcase subscribers offering some perspective at the time.
TLDR, ASM stands for Additional Surveillance Measure. As nefarious as it sounds, stocks get added to this list by exchanges purely based on price and volume data, particularly when stocks go up a lot in a short interval. Here’s a snapshot from the ASM FAQ on the NSE website:
Source: NSE Website
Zooming out to look at the stock since it entered the portfolio adds to that perspective. We added the stock on 1st March at a little under ₹ 630
CDSL chart since addition to the portfolio
Since the stock had grown to become nearly 10% of the portfolio, we reduced allocation slightly but continue holding the remainder as of this writing. Of course, unlike fundamental schools of investing, a systematic approach like CM Momentum won’t be dying on a hill to defend the company and its qualities. If it continues to lose momentum, it will exit the portfolio.
Outlook for August
Chart shows NIFTY Total Returns Index returns by month from 1999 to present day.
July, historically the third-most productive month of the year, was subdued. August tends to be not very exciting. But one look at the March column should shoo away any thoughts of relying on this table to form predictions.
Smallcaps, in particular, continue to be strong, and as of July end, looks like even select large caps were starting to stir. But as always, we’re not predicting. Stay strapped in for turbulence.
Other Reading:
Frequently asked questions about the Capitalmind Momentum Portfolio
Momentum June 2021 Update (the 1-year rolling returns chart and the grey zone of 2019 underperformance is essential reading)
