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Momentum Factsheet November 2021


Oct + Nov 2021 Update for the Capitalmind Momentum Portfolio

The Capitalmind Premium Momentum portfolio had a flat November while the NIFTY and CNX500 were down -4% and -3%, respectively. Overall, for October and November, CM Momentum is marginally positive (+1%) while the indices are slightly down, NIFTY (-3.6) and CNX500 (-2.7). Here’s the full-year review of 2021 performance

Read on for the combined Oct and November 2021 wrap-up.

Capitalmind Premium Momentum Portfolio Performance since inception

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 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, it has comfortably outpaced the benchmarks with lower volatility.

November 2021 Returns Update

The chart shows Capitalmind Momentum smallcase returns versus the NIFTY 50 and the CNX 500.

CM Momentum in October and November

If there were a gif representing the markets over the last two months, it would be a golfer teeing off with a powerful drive, the camera following the ball as it arcs gracefully over the fairway, looking set for the green, unexpectedly deflecting off a drone flying too low, ricocheting off a tree and rolling all the way back to the tee. The golfer then flings his club into the trees before stomping off.

At least that’s how it would have felt like to the folks following daily movements, unfortunate portfolio managers included.

Those who had better things to do and checked their portfolios once a month would have trouble stifling a yawn.

Of course, conveniently picking start and dates can prove any point. Like that selfie-angle, we all have meant to highlight our best features while hiding the double-chin.

Well, here’s CM Momentum’s unflattering selfie, double chin and all.

Performance from the beginning of August this year to November, the last four months:

The last four months have been bad. CM Momentum has trailed the index by a distance and is flat overall, while the index is up a respectable 8%.

The portfolio had massive underperformance versus the benchmarks in the latter part of October, where the NIFTY was up almost 15%, and CM Momentum had nothing to show. That difference has reduced by about half as broader markets have corrected.

At this point, the logical next statement to make is to zoom out to the start of the year and compare the same three lines. Hint: YTD 2021 is a pretty good angle for CM Momentum despite the last four months.

Instead, let’s stick with underperformance for a bit.

Because it has happened in the past and will happen in the future.

Unless investors in an active strategy get comfortable, and I mean really comfortable with the idea that their portfolio will underperform the benchmark from time to time, they are unlikely to be able to stick with any strategy long enough to see returns exceeding the market. In fact, moving in and out of portfolios based on the last x months is a guaranteed recipe for long-term underperformance compared to the index.

Here’s a chart I shared in our recent weekly updates to Capitalmind Premium and smallcase subscribers.

The chart compares the 3-month rolling returns of CM Momentum with the NIFTY and the CNX500.

How to read this chart: The value on any day represents the % return from having invested three months before that day. For example, if you had invested at the beginning of October 2019, by 1st Jan 2020, CM Momentum had returned 4.4% while the NIFTY did a little better, at 5.3%.

When the green line is above the dark grey lines, it means CM Momentum has done better over the last three months than the benchmarks, and vice versa. Duh!

The grey-shaded regions conveniently show where CM Momentum’s 3-month returns trailed the higher of the NIFTY and the CNX500 indices. The broader the shaded region, the longer the duration of underperformance. The period of underperformance is mentioned at the top of the shaded areas rounded to the nearest month.

Key things to note from this chart:

    1. The chart confirms that CM Momentum has been underperforming the benchmark indices
    2. Since April 2019, CM Momentum has underperformed the benchmark indices 32%, 1/3rd of the time. The regular appearance of the grey-shaded regions tells us periods of underperformance have occurred every few months.
    3. In five instances, underperformance lasted for longer than a month. There was even a four-month stretch from Nov 2020 to Feb 2021, painful at the time. But look at what happened after.


₹100 invested in the CM Momentum portfolio in Jan 2019, a little under three years ago, is worth over ₹320 now. ₹100 in the NIFTY for the same period would be worth ~₹170. Buy and hold NIFTY investors would have also experienced the excitement of a -36% fall in March 2020. CM Momentum investors got away with about 1/3rd of that decline.

Remember, the last two years have been anything but “normal” for the market. Momentum strategies, in general, have far outdone their own long-term average of 17 – 22% (markets, in general, have done about 12-14% over the last 15 years).

Our backtests show on any 1-year timeframe, there’s a 30% chance that CM Momentum underperforms the index. That chance drops to 11% on a 3-year timeframe and 2% on a 5-year timeframe. Conversely, the longer the investment horizon, the higher the chance of outperforming the index.

The bottom line, as much as we hope to avoid it, short-term underperformance is not only inevitable but expected. And since we can’t predict underperformance, the only logical approach is to invest with a time horizon and buckle in for turbulence.

Outlook for December

Going by the US Federal Reserve Chair Jerome Powell’s comments yesterday, that tap called liquidity that’s supposedly kept markets up for the last 20 months is about to be turned off. Central bankers have the unenviable job of managing disparate markers of the economy. Since what they say impacts markets directly, they tend to be ultra-careful with their words. And so his statement reads, “the Fed would consider tapering off its purchases of government bonds “perhaps a few months sooner” than previously expected.”

Try using “consider”, “perhaps”, “previously expected” in a sentence and saying anything specific. It’s impossible—nevertheless, it’s not great news for equity investors.

Coronavirus variants are now as frequent as Apple launch events. Omicron is the latest, named with a Greek alphabet like its predecessors. This time WHO skipped two letters, “Nu” and “Xi”, apparently for sensitivity reasons. You have to wonder what happens after they go through the remaining nine letters of the Greek alphabet. But what has unfortunately become usual, there could be travel bans, lockdowns and general restrictions on daily life, not because they are effective, but because they are easy. Will markets follow the March 2020 template of Pharma sticking out as everything else falls? Unlikely.

Historically, December tends to be a decent month for Indian equities.

In the last 20 years, December was an up month six out of the eight times that November ended in the red. This time, we can’t be sure. But then again, when could we ever be sure?

James O’Shaugnessy, the author of “What works on Wall Street“, tweeted this timely quote today:

“All of our old models are collapsing. Information flow is accelerating so fast that we don’t know what’s going on most of the time. We’ve got to learn to put a lot of things in the “maybe” state and keep open minds.” ~Robert Anton Wilson (writing in 1992)

There’s this scene in the 1962 classic; Lawrence of Arabia

Lawrence, a British Army lieutenant, is talking to his subordinates.

He lights a cigarette for one of the men and then puts the match out with his fingers without flinching.

The other man tries to do the same thing and yells out in pain.

“So what’s the trick?” he asks Lawrence, who is about to leave.

Lawrence says, with a smile, “The trick…is not minding that it hurts.”

Applies to most things that are worthwhile. Applies to investing.

Capitalmind Momentum smallcase by Capitalmind

Further Reading:

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


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