Smallcap momentum portfolio

Q&A: Questions & Answers Portfolio Q&A
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@iyeron Hello, happy to provide answers to the queries that you have raised.

  1. This momentum portfolio moves on the basis of selecting the strongest stocks. Therefore, if any stock in the pf turns weak or another stock becomes stronger, it gets replaced automatically. Rebalance is done every week and hence response is very quick.

  2. You are right in terms of growth of small cap stocks. However, please note that this portfolio will mirror the market direction. If the market is moving upwards, the pf will also rise. On the contrary, if the market falls, this pf will fall.

  3. I measure strength of a stock and for smaller capitalisation, it is always better to do the rebalance at shorter intervals. For example, it is appropriate to rebalance Nifty 50 stocks on a monthly basis while for Microcaps or small caps, it is better to rebalance on a weekly basis. This is very normal for momentum portfolios.

  4. The pf is very dynamic and changes on virtually every week. As of now, the highest returns in this pf is BSE which is returned 159%, ie. 1.5 times gain over 3 months. The weaker stocks get removed automatically. I have not seen losses over 10%.

  5. This portfolio can be used for screening any market cap or any other formula. However, I have chosen to go with NiftySmallcap250 index and the stocks in the index. When the index get rejigged, the universe for me will also get changed appropriately. No other screening criteria. As long as the stock is strong relatively, it will remain in the portfolio.

  6. All 20 stocks in the pf are from NiftySmallcap250 index. I have separate portfolios for NiftyMidcap150 and NiftyMicrocap250 indices.

  7. This is a continuous process. I was waiting for one year duration before I published it.

Please note that this portfolio does not guarantee a positive return always. If the market goes down, the pf will also go down. If the market is in a secular downturn, pf will continue to go down. I never go to cash. Remain invested all the time.

The only consolation is that I will be holding the strongest stocks every week.

Viswanath

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