Microcap momentum portfolio

I have created a momentum portfolio comprising of 25 top stocks from NSE’s Microcap 250 index. This pf is based on highest momentum on price change and reduced volatility. I rebalance every week. It has been more than a year since I have been running this portfolio and my returns have been good. My trades are done through a discount broker, hence no brokerage is applicable. I have not included statutory or depository charges. I know this will bring down the returns number slightly, but I guess these numbers are still ok. Portfolio started of as equal weighted, but since then I have let the winners run without trimming their size. This means that any new entry will have the same weightage as the stocks going out.

Rebalance is done every Monday following certain rules. If a stock is out of the top 25, but is still within the top 30, it does not get removed. This is done to reduce the churning and associated costs a little bit. Any new name that appears can enter if there is a vacancy only. If the number of entrants are more than the actual exits, then entry will be done on the basis of their ranking.

Portfolio valid for Monday, 26th Feb 2024.

Based on ranking

  1. ANANDRATHI
  2. GET&D
  3. INOXWIND
  4. ELECTCAST
  5. CHENNPETRO
  6. CHOICEIN
  7. IFCI
  8. HSCL
  9. KIRLOSENG
  10. ANANTRAJ
  11. HBLPOWER
  12. NEULANDLAB
  13. JKTYRE
  14. RAILTEL
  15. MAHSEAMLES
  16. MSTCLTD
  17. WOCKPHARMA
  18. STAR
  19. PAISALO
  20. ARVIND
  21. SCHNEIDER
  22. ITDCEM
  23. NEWGEN
  24. JPPOWER
  25. DBREALTY

Based on A → Z for easy tracking

  • ANANDRATHI
  • ANANTRAJ
  • ARVIND
  • CHENNPETRO
  • CHOICEIN
  • DBREALTY
  • ELECTCAST
  • GET&D
  • HBLPOWER
  • HSCL
  • IFCI
  • INOXWIND
  • ITDCEM
  • JKTYRE
  • JPPOWER
  • KIRLOSENG
  • MAHSEAMLES
  • MSTCLTD
  • NEULANDLAB
  • NEWGEN
  • PAISALO*
  • RAILTEL
  • SCHNEIDER
  • STAR
  • WOCKPHARMA*

Entry:
PAISALO and WOCKPHARMA cannot enter as there is no vacancy

Exit:
ASTRAMICRO and TITAGARH stay within the top 30 and hence remain.

25 Likes

very nice !
about 4 name features in my pf, though some of the names are about 1 year old.

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@LarryWink 3 out of 25 have been in the portfolio since Aug 2023.

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Good effort :+1:, Please advise to exercise caution at current mkt, if at all have to invest, then divide 4 tranches each. With 1 month delay. Thank you.

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@R_Sawkar I am not recommending any investment. I am just sharing my study. :smile:

8 Likes

Could you also please share a copy of the GSheet here?

Your disclosure is mandatory.

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All, please note that this is not a recommendation for investment. I am just sharing my study. Thanks for noting this.

5 Likes

So vishwanath…where does this micro momentum pf stand today.
are you shuffling this micro pf too, on week basis ?
Would like to study in case there has been any changes.

1 Like

@LarryWink I rebalance this pf also in weekly basis. I will upload tomorrow the changes for coming Monday.

4 Likes

Interesting methodology given you are studying momentum of these stock.

Will you be sharing weekly returns of the portfolio as well from tomorrow onwards?

Staying tuned to this thread!

1 Like

@VibhavB I will be sharing the updates to the pf only; will not be sharing weekly returns.

Returns are a function of allocation of individual stocks in the pf. When someone starts, it is recommended that they start with equal allocation. As the pf is not rebalanced for weightage, winners keep running. Currently, the highest weightage in my pf is 9% and lowest is 3.2%. Therefore, the allocations will be different at different points of time.

This will create lot of confusion.

3 Likes

Update for entry on 4th March 2024

Based on ranking:

  1. GET&D
  2. ANANDRATHI
  3. INOXWIND
  4. ELECTCAST
  5. HBLPOWER
  6. PAISALO
  7. NEULANDLAB
  8. ACE
  9. SCHNEIDER
  10. NEWGEN
  11. JKTYRE
  12. ANANTRAJ
  13. WOCKPHARMA
  14. IFCI
  15. CHENNPETRO
  16. KIRLOSENG
  17. HSCL
  18. MSTCLTD
  19. STAR
  20. CHOICEIN
  21. MAHSEAMLES
  22. ARVIND
  23. RAILTEL
  24. DBREALTY
  25. JPPOWER

Based on A → Z for easy tracking

  • ACE*
  • ANANDRATHI
  • ANANTRAJ
  • ARVIND
  • CHENNPETRO
  • CHOICEIN
  • DBREALTY
  • ELECTCAST
  • GET&D
  • HBLPOWER
  • HSCL
  • IFCI
  • INOXWIND
  • JKTYRE
  • JPPOWER
  • KIRLOSENG
  • MAHSEAMLES
  • MSTCLTD
  • NEULANDLAB
  • NEWGEN
  • PAISALO*
  • RAILTEL
  • SCHNEIDER
  • STAR
  • WOCKPHARMA*

Entry:
ACE and PAISALO enter.
WOCKPHARMA cannot enter as there is no vacancy.

Exit:
ASTRAMICRO and ITDCEM exit.
TITAGARH stays within the top 30 and hence remains.

7 Likes

How do you calculate this?

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@jstocks Price change is calculated by dividing current price with look back periods of 1 year and 6 months.
Reduced volatility - I look at the daily price change for 1 year and 6 months and calculate standard deviation of the price change over these look back periods respectively.

4 Likes

Update for entry on 11th March 2024

Based on ranking:

  1. ANANDRATHI
  2. GET&D
  3. ELECTCAST
  4. SCHNEIDER
  5. INOXWIND
  6. PAISALO
  7. ACE
  8. ANANTRAJ
  9. HBLPOWER
  10. NEULANDLAB
  11. JKTYRE
  12. NEWGEN
  13. STAR
  14. CHENNPETRO
  15. MSTCLTD
  16. ETHOSLTD
  17. DBREALTY
  18. IFCI
  19. CHOICEIN
  20. WOCKPHARMA
  21. RAILTEL
  22. MAHSEAMLES
  23. ARVIND
  24. VOLTAMP
  25. KIRLOSENG

Based on A → Z for easy tracking:

  • ACE
  • ANANDRATHI
  • ANANTRAJ
  • ARVIND
  • CHENNPETRO
  • CHOICEIN
  • DBREALTY
  • ELECTCAST
  • ETHOSLTD*
  • GET&D
  • HBLPOWER
  • IFCI
  • INOXWIND
  • JKTYRE
  • KIRLOSENG
  • MAHSEAMLES
  • MSTCLTD
  • NEULANDLAB
  • NEWGEN
  • PAISALO
  • RAILTEL
  • SCHNEIDER
  • STAR
  • VOLTAMP*
  • WOCKPHARMA*

Entry:
ETHOSLTD and WOCKPHARMA make an entry.
VOLTAMP cannot enter as there is no vacancy.

Exit:
JPPOWER and TITAGARH exit.
HSCL stays within the top 30 and hence remains.

Please note that in two weeks time I expect that over half of the pf will change as the index has been rejigged. Several of the top performers will move to the next higher Index; hence, we will have to exit them here.

3 Likes

On what basis do you select the top 25 stocks out of the 250? I am planning to employ your strategy only on the top 5.

Also, do you think it’s better to use your strategy on smallcap stocks rather than microcap in order to avoid liquidity issues?

@jstocks If you read my first post you will see how this done. I will mention it again for your reference.

  1. List all the stocks of the index and check the price change over a look back period of 1 year and 6 months.
  2. Check day to day price variations for every stock and calculate standard deviation over look back period of 1 year and 6 months for every stock.
  3. Divide price change by standard deviation to obtain momentum ratio for 1 year and 6 months look back period.
  4. Give equal weightage for both time periods, ie (1 year momentum ratio * 0.5) + (6 months momentum ratio * 0.5) and obtain total value.
  5. Do the ranking for all stocks based on total value and select the top 25.

Incidentally, I check the population Standard deviation and mean of price change for the full index. But you do the ranking even without this and change in ranking will be very small.

2 Likes

@jstocks Both smallcap and Microcap stocks carry risks. To mitigate the risks, I have included 20 stocks in smallcap pf and 25 stocks in my Microcap pf.

For a typical retail investor, liquidity is never going to be an issue. Another point is that all these stocks are part of a Nifty index and hence sufficient volumes will be available.

1 Like

There have been several messages asking me to explain the procedure in greater clarity. I am putting together some points below for everyone’s benefit. I will also explain some steps that could be a starting point.

  1. I use two look back periods of 1 year and 6 months.
  2. Let us take for example, AARTIPHARM, one of the stocks in the Nifty Microcap 250 index that is used for our purposes.
  3. Price change over 1 year is 455.9 / 303 = 1.504 and over 6 months it is 455.9 / 450.2 = 1.012
  4. Do the same for all stocks in the index.
    4a. You could rank the stocks based on 1 year or 6 months and invest in the top 20 or 25 stocks.
    4b. You could add the ranks based on 1 year and 6 months price change and then add the ranks. Do the ranking based on the sum obtained. Then invest in the top 20 or 25. This will give a balance between 6m and 1y performance.
    4c. This could be a quick way of starting a momentum pf.
  5. Check the daily change in stock prices, ie stock referred above was 455.9 on 29-Feb and 456 the previous day. Determine log(456/455.9). Calculate daily returns over previous 6 months and 1 year period.
  6. Calculate standard deviation of the returns of these two periods. This will help to understand volatility.
  7. Divide the 1 year return with 1 year standard deviation. This will give the momentum ratio.
  8. Divide the 6 months return with 6 months standard deviation. This will give the momentum ratio.
    8a. You can rank based on momentum ratio for 1 year or 6 months and invest. In our case, AARTIPHARM gave a rank of 149 for 1 year and 153 for 6 months.
    8b. You can add the rank over 1 year and 6 months momentum ratio. Rank again based on the total obtained. Total rank for AARTIPHARM will be 302. The total rank for the best of best can be 2 (1st rank in both time periods) and the worst of worst 500 (250th rank in both time periods).
    8c. You can invest based on the total rank in the top 20 or 25 stocks.
  9. I then calculate the mean and standard deviation of the population. Then work on ranking.
    People can stop at Step 8 itself and obtain necessary performance.
12 Likes