I have been running a midcap pf based on Nifty Midcap 150 for nearly 2 years now. People wanted to have a look at what I was doing. Hence, I am starting this new thread.
The methodology used here is identical to what I use for Smallcap250 and Microcap250.
This is a 15 stock portfolio based on Nifty Midcap 150.
I check returns over 1 year and 6 months.
Divide the return by Standard Deviation of the daily returns for the appropriate period.
Calculate Z-score for each scrip based on the respective time periods.
Compute average of 1y and 6m Z-scores.
Rank the stocks.
Rebalance is done on 1st and 16th of every month.
I don’t relax for Worst Rank Held (WRH) meaning if a stock falls below 15, I replace it at the next rebalance.
No action is taken in the intervening period.
I am providing a link to the Sheet that I use.
I am not planning to update the thread after every rebalance. If someone has a request, I will post the changes.
Have you thought of dual momentum in case of MidCap? (i.e. considering relative strength wrt Nifty 50/Nifty150 along with absolute momentum)…
I am not sure if that will help for smallcap or microcap pf, but for midcap, what do you think?
Another query… I wonder about cochinship. I started declining from 10-12 Jul, and still it could make in the list of 1st Oct. I think it should not even got in there (If it is, then it should be in earlier list as well as it is increasing since an year)…
I have not considered dual momentum strategy. My understanding maybe slightly different to what you are indicating. Dual momentum refers to comparison among different asset classes and choosing which one to invest in. This theory was espoused Gary Antonacci. Someone made a good comparison on Gary’s theory and in an Indian context, say for example, the classes we are comparing are Nifty 50, an Income fund (for debt) and Gold. The first step is to check if Nifty 50 did better than Debt. If yes, continue with equity, else shift to Debt. Next step is to check if equity did better than gold. If yes, go with equity, else, shift to Gold. Here complete shift happens from one class to another when we do rebalancing. That is not something I want to do.
Regarding COCHINSHIP - while we are looking at absolute momentum (change of price of stock over different look back periods), our selection or ranking is relative. It depends on how this stock has done over certain periods of time as compared to its peers. Though it has fallen, if it has done better (relatively) it will remain in the pf. Of course, COCHINSHIP was moved from one index to another recently.
Thanks…
I was thinking relative momentum for stocks comparison. But later realized that it may be same as sorting or else if we want to do it truly we need to find their relative momentum in industry which is complex.
For Cochinship, I tried changing date & calculation. You are right, chochinship is coming at 11th place.
However if you see the chart, it was even below 30SMA (daily)… May be we need to study if all other have fallen (or sideways with low 6 month increase) at the same rate. So adding another check might help…
Few more questions
What is the significance of calculation beyond yellow highlighting in raw_data sheet (columns 559 to 567)?
Have you used any backtesting library? Using google sheet is cumbersome to check historical pf value.
@Keyur_Joshi Couple of things if we have to simplify momentum investing (not in any specific order).
We are identifying which stocks are in upward momentum in any universe and ranking them.
After that we have two choices only - if we find equity as a class is going down, we can shift the entire pf to cash or gold. If we want to remain invested, look at relative performance of the stocks in the universe and choose the strongest ones.
Price change is the only true reflection of momentum. Every other operation we do on the price change will only reduce the returns (but can reduce drawdowns as well).
Even parameters like Standard deviation or any other factor will depress returns only.
Momentum investing is rule based, non-discretionary investment.
Build ones own system with specific rules and stick to it.
Others:
Instead of using momentum ratio and Z scores, wanted to check if there could be any difference with Sharpe returns. The calculations below the yellow line are for that purpose. However, I continue to use momentum ratio and Z score only.
One thing that I do not like about index funds (even if they momentum funds) is that they hold a large number of stocks (example 250 in the case of Microcap250 or Smallcap 250). They cannot be as efficient as holding just the top 25.
MFs rebalance only when the index is rejigged, that is typically about once in 6 months. We have an option of being more nimble and rebalance as necessary - weekly, fortnightly or monthly. This should eventually lead to better results.
@Saransh_Khemka Please find attached link to the sheet I use for calculation of XIRR. As you are aware all investments are shown in -ve and withdrawals in +ve.
I have populated the sheet with dummy numbers. You can insert lines as you need.
thanks Visu. will appreciate if you can share the rebalance each fortnight. my email is sandeepmehta67@gmail.com in case you dont want to broadcast it widely.
Your PF and the strategy is very interesting. Thank you for sharing this educational experience.
Though I have been in the market for quite some time, I still don’t follow it in a disciplined manner, neither do I have a strategy. Therefore, I am trying to lean better and would appreciate your advice.
In the PF you have mentioned, for the first 6 months of the period, it shows 10 stocks and then grew it into a 15 stock PF.
Would you mind to share what is the percentage holding?
Hello @jmpullat. One of the advantages of our system oriented investment (like momentum) is the discipline it brings. It also removes the discretion that one might want to apply.
I started with 10 stocks. Later, when I wanted to invest more, there were two choices, (1) increase the amount in each stock or (2) expand the pf size and continue.
I went with option 2 because it gives me a long runway for future investments. Typically, you can go up to 10% of the universe and this case, as the universe if Midcap150, I can go with a 15 stock portfolio without any concern.
Not sure what you mean by % holding.
If you are asking about % holding of each stock in the pf. My objective is always to go with an equi-weighted pf. Thereafter, I let the winners run without any limitation. However, when I invest some bulk amount (which I do when I have investible surplus), I try to get back to equi-weighted.
If you are asking what % of my pf is momentum. I invest in multiple pfs using this strategy. My total investment in momentum pfs is slightly more than 10% of my total equity investment. That is because, I started in 2021 only and typically, more of the new investments are in momentum.
