May 2021 Monthly Update for the Capitalmind Momentum Portfolio

“Sell in May and go away” they said. In April, we observed the start of a shift from mega-caps to mid-caps in terms of momentum. Some large-caps got back their mojo but overall mid and small-caps had a better time of it in May. The NIFTY was up a whopping +6.5% taking 2021 YTD return to 12%. Momentum largely kept pace with everything happening around with a +9% month in smallcase NAV terms.

Read on for the May 2021 wrap-up.

A note on performance measurement and reporting

On every smallcase page, there is a ‘Download Chart’ button that lets you download NAVs since inception to do your own performance calculations.

Downloading smallcase NAV

According to the NAV chart, smallcase calculations show the Capitalmind Momentum CAGR at ~60%, we believe actual performance for most investors is likely closer to ~46%. Here’s why:

smallcase follows an index method of calculating NAV from day-to-day i.e. it assumes fractional shares where needed to match the exact weight of the smallcase. This is clearly not possible when you actually buy the components of a portfolio. The 2nd key point is how the smallcase method considers entry and exit prices for rebalances. If a rebalance is added over a weekend, to be executed on Monday morning, the smallcase method considers friday close prices as entry price for new additions and exit price for the removals. Those prices might or might not be available on Monday, especially where new additions open up from their Friday close prices.

TLDR: smallcase NAVs show an ideal theoretical return which is unlikely to be the true realized return.

Keep this in mind when reading reported performance in marketing literature, and not just ours.

Capitalmind Momentum Portfolio Performance since inception

Wait, why haven’t we just junked this method and report numbers our way then?

It’s a lot of work to maintain daily NAVs accurately. Splits, Bonuses, Demergers have to be accounted for along with the cash balances to get it right. This works well in our PMS where the system relies on actual transactions to calculate the daily NAV. But since the portfolios are not identical (there is a 70-80% overlap at any time), we need a separate mechanism for tracking the Premium momentum portfolio. And till we find a reliable way to track NAVs that does not involve manual intervention, we’ll use the same source to report performance, along with our estimate of likely realized return.

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.

May 2021 Returns Update

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

In the April 2021 note, we observed the start of a shift from mega-caps to mid-caps in terms of momentum. Some large-caps got back their mojo but overall mid and small-caps had a better time of it in May.

Leaders over the last quarter, Metal and Chemical stocks have lagged the rest in the last 1 month. At the same time, Oil & Gas, Paper, Financial services stocks seem to have started to snap out of their lethargy.

This aggregated view is for easy information consumption only. We look at individual stocks with respect to the universe and not sectors when making changes to the portfolio.

Changes for June

We replaced 7 stocks through the course of May.

Current Portfolio: Chart shows current positions with exits and fresh entries. Stock numbers indicate the order in which they were added to the portfolio. The May additions are denoted as “Entry”. The dark green dots show % return since entry into the portfolio (vertical line at zero).

Outlook for June

In case you’re new to Capitalmind, be aware that the market outlook section is almost a parody section that finds different ways of saying “We don’t know” about what the market is about to do.

Some sections of the market continue to surge and so for now enough stocks exist that show strength. We continue to be fully deployed until things change.

When everything ends in the green, and you start wondering “how much” and not “if at all” about returns, that’s when markets tend to surprise.

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As always, let’s stay ready to duck and weave.

Until next month.