@Mudit.Kushalvardhan This is clearly not good news for retail investors. In this case, why will people even go to discount brokers. Everyone will rush to full service brokers.
I have a feeling that this will not happen. You should be able to continue without any issues.
Anyway, if they introduce brokerage, then we will have to review the rebalancing frequency. Weekly or even fortnightly might not be a good option due to associated costs. If we end up doing monthly rebalance only, then, we cannot continue with the microcap and smallcap universe. We will have to shift to large caps.
Actually how the basket evolves over time depends on your trading strategy. I create a basket of stocks from a sector on the upmove and ones which are completing their bases and then add the winners and exit out from the laggards or losers. So the basket composition keeps changing over time.
Let the news of new charges come, too early to think of anything.
One can take trades, go as per plan, check the broker statements, and see if the new charges are impacting the profits to any meaningful extent.
@tbhavesh It is possible that, others will increase their charges too.
We hear about broker websites and apps not responding sometimes, having technical glitches. So if indeed people move from one broker to another, I am not sure how many brokers can handle the influx of new customers.
Sir, I have 1 question, as I was going through rebalances that you have mentioned every week, I can see, whenever stock makes entry into portfolio, its already into consolidation.
e,g olectra, Infibeam (11 march, 24), EIH (11 March) and many others. Please help if I am missing something
Is it possible that such consolidation is temporary? And you may need to reduce the frequency of re-balancing to use the breakout after consolidation? Have u watched such stocks after 1 week or 2 weeks, how they perform??
@Sudhakar_Subramanian You are right. We will have to wait to see what these discount brokers are planning to do. Are they going to charge brokerage for buy only, sell only or both sides? How much will the brokerage be?
There are multiple ways of managing this.
Change the rebalance frequency from weekly to fortnightly or beyond.
Change the ranking (WRH - worst rank held) at which the stock is dropped from the pf. Example, in this 20 stock pf, the stock is exited if it falls below 25. Instead, we can keep it until it falls below 40 or 50 ranks. This is not uncommon. This will reduce the churn.
@visuarchie : Sir, if we want to use similar strategy in nifty 200, which will have large and mid caps. What modifications could be done as we are suppressing volatility in this strategy.
@visuarchie , Vishwanath ji, your patience in answering all the questions raised is commendable. You are really a good person.
I am taking liberty to ask one more question… As I have started LargeMicap 250 universe , similar strategy from 1st July, in my top 20 , BSE was bought. But within 2 -3 days, BSE is out of list. I reckon that, this is because my additional filter of Price going down 100 DMA…as currently BSE has gone below 30 week EMA also I think…In such case, should I wait for my 15 days re-balance or I can cut it off on coming moday itself? It is already down by 5.5%
Momentum is a good strategy. It is a powerful exception to the efficient market theory. Momentum strategy has given better than average returns in almost all studies. Real problem is churn, short term capital gain taxes and transaction cost.
Why don’t invest in Momentum mutual fund, following the same strategy as You save on short term capital gain taxes due to pass through provision of mutual funds. Further their transaction cost is much lower. It also saves you from continuously watching market prices. Around 6 months back I invested a small amount in Quant momentum fund. They have been able to generate more than 55 percent, against 25 percent TR of market. I am following. Even when the market falls, they are able to generate better returns than market. Let us see how it goes.
I would take liberty to answer this.
You have rightly said that Momentum mutual funds would be better option from the point of view of costs and capital gain taxes. But one very important criteria in momemtum portfolio is momentum itself. And most momentum mutual funds have quarterly or half-yearly re-balancing frequency. This may hamper the returns as they would be late at the table, by that time dinner would be over.
I think MF, due to their size, have a limitation on which companies they can invest without getting into liquidity issues. Sorry to barge-in, I too will look fwd for @visuarchie sir’s opinion on your question.
Details from Quant Momentum Fund page:
2. Screening Process: To identify promising stocks within our investment universe, we employ a screening process based on our VLRT framework’s scoring methodology. Each stock is selected by the statistical significance of the risk exposure and the conditional expected return based on generalized t-statistics. Our risk mitigating investment framework VLRT combines Valuation Analytics, Liquidity Analytics, Risk Appetite Analytics and other risk factors derived from financial statements and macro-economic data. Stocks are evaluated based on these complex scoring criteria in a dynamic environment to determine their suitability to generate superior risk-adjusted returns.
Typically many of these funds hold a large number of stocks and their rebalance frequency is also distant. For small cap and micro cap, we are rebalancing every week and therefore, I expect that we are more nimble. As we have limited number of stocks, I think we will be holding the stronger stocks, going up or down.
I had a brief look at the fund on valueresearch.
In addition to equity, they hold some debt also. Further, not clear what their universe is. Many of their top holdings like Reliance or Park Hotels, or United Spirits will not appear in any momentum screening. Therefore, they must be using a discretionary element also.
At the end of the day, it depends on what you want and how much time you have to spare.
It will give me greater pleasure in a pf that I have designed than investing in a MF, even if the returns are the same.
That’s is very correct. There can be thousands of successful investment strategies, we just need to choose what suits us.
I have never been a fan of mutual funds. My whole investment in mutual funds was only ELSS, to save taxes. Lately I have taken some interests in mutual funds for specific reasons.
I took interest in Quant Momentum Fund, just to see momentum strategy in action. I am yet to see it in bear markets, though in market corrections I didn’t find anything alarming. I also subscribed to Motilal Oswal Defence Index Fund as I am not finding any defence stocks which a value investor in me can buy.
In general I am not finding any good bet in present market’s valuation. Thus looking at MF space a bit closely for some investment opportunities.
