Portfolios (Unlocked) : Capitalmind Performance in 2016 – A Good Year For The Five Portfolios

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The year has been rotten, for the markets overall. The Nifty’s flat. Smallcaps had a good run, but collapsed in the last two months. Midcaps have returned less than 5%.

But what have Capitalmind Portfolios done? We analyze the performance of all the portfolios we have. There were four stock portfolios and one options portfolio:

• Momentum: A max-10 stock portfolio that contains items we pick from Outliers and other sources.

• Long-term: A steadily built diversified portfolio focussing on multiple themes and interesting longer term stock stories

• Dividend Yield: Stocks that pay out a decent amount, for cash flow.

• Monsoon: A short-term play that targeted stocks that would benefit from a good monsoon.

• Stratoptions: Our options strategy to try and get a consistent 3% per month by targeting volatility and breakdowns. 

How did they do?

Here’s the chart of their performance from inception:

And here’s how they fared in 2016:

Basically, Rs. 1 invested in any portfolio has generated at least 9% (Momentum) and all the way to 29% (Long Term) in 2016.

The Momentum Portfolio.

Our longest running portfolio just finished three years since inception. This is also the time we will shut it down – with a compounded annualized growth of over 32%. (More on that later) We started it with an innocuous purchase of Strides Arcolab in December 2013, which has been our biggest stock return too.

The total return since inception has been an annualized 32% per year.  Rs. 100 invested since December 2013 has grown to Rs. 234.

In 2016, we had a lower return of just 9% (Jan to December). It still beat the market, but the returns have been horrendous, and we weren’t invested most of the time. In fact we were almost never fully invested. (See the portfolio)

The Long Term Portfolio

This has done well this year, with a return of 29% in 2016. However, because of crappy decisions earlier, the return in 2015 was flat (we started in November 2014). Rs. 100 invested since inception has become Rs. 132 (all of which came in 2016).

We exited some stocks that we no longer felt confident about – the IDFC twins, Bharat Forge and even a 50% winner in Canara Bank. We entered a few new stocks, and while many of them are still underwater, we continue to hold as they grew.

Sudarshan Chemicals was a big winner, having started in at Rs. 100. It languished for a while and when it touched Rs. 330 this year, we exited 1/3rd and recovered our cost. It’s still at 284. Supreme Petro had also doubled (but has since fallen 20%, but we are still holding it).

The overall performance will be visible after a few years. And there will be duds – some stocks that go to zero. But we will focus on overall portfolio returns, which we think will come from many stocks that do much better. (See the portfolio)

The DivYield Portfolio

We built this in Jan 2016 to get stocks that paid out decent dividends. We had a shocker in the year when one stock – Noida Toll Bridge – totally lost its mojo after courts ruled that it can no longer charge a user toll. Which pretty much signifies an end to the company’s future, so we exited it at a 25% loss.

Other big losers include ILFS Investment Managers (-20%), Coal India (-5%) and Indiabulls Housing Finance (-3.3%). However the remaining 8 stocks were winners: MOIL made a whopping 76% in the year. (and we don’t include the awesome buyback which would have increased the return even more).

The portfolio has returned 17% this year. This is better than the Nifty, the Midcap Index and most mutual funds. Which isn’t a bad thing for a portfolio that is only focussed on cash flow.

The Monsoon Portfolio

Shreesh set this up as a short-term portfolio of sorts. Good monsoon? Let’s find a way to profit. And profit we did, with a 20% return (absolute) in four months. (See the portfolio)

Again, here, two stocks lost money. But 15 stocks made a profit with one stock (Escorts) doubling in four months. A very decent return for a portfolio, and we hope to see a few more such portfolios in the future.

StratOptions

How do you make money with very little negative return? There is a way using options. We didn’t want to pontificate. So we attempted to demonstrate the idea, practically. Using options volatility metrics, position sizing and our home grown tools on Snap (and Options Oracle) we targeted 3% a month. And realized about 28% in a year, which isn’t too bad.

To see how we went about it: Read Vashistha’s long and informative post.

The return in December was another 2%+ taking the 2016 return to 24%. Which saw very little downside volatility – we almost never made too much of a loss and even then, not for too long.

The Others

Our Fixed Income Portfolios (first recommended in Jan 2015) have done about 20% returns. We moved to ultra-short-term funds recently to avoid the upsurge in longer term yields and that’s been kind to us too.

Our arbitrage recommendations have come once in a while (BEL, Bharti Infratel). Both did about 10% each, in a span of three months (each).

We also have worked through a number of bonds, one of which has returned 12% this year (annualized). Another few mature in 2017 and 2018. We’ve also used options, bonus stripping and other techniques to cut taxes.

The Return Tables

Here’s how the returns have been, with annualized returns of the portfolios (Monsoon is not “annualized” – since it’s four months only.)

The Sharpe ratio tells us how much the risk was for the return (a soft-of risk-adjusted return) “Rf” = “Risk free” return. What we mightn’t have done in 2016 in Momentum was made up in the other portfolios.

And here’s a chart for 2016, of the risk/return equation. Long term buy-and-hold has much higher risk, and Stratoptions which is a non-directional portfolio is less volatile.

What Happens in 2017?

After a good year, we’ll consolidate a few portfolios together.

• The momentum portfolio will merge with the Strong Stock portfolio. (Today we exited all momentum positions). Part of the portfolio will be “model based”; we will share the model mechanics in a post in January. And another part will be discretionary. We will change stocks a few times, but restrict our changes to Mondays. (Unless something urgent or big happens). We want to reduce the number of transactions we do. There will be downside risk of course, but we find that we have lost a lot more by not participating, than by avoiding a bad market. To get downside protection we would only suggest using options (sell out of the money calls, buy out of the money puts or do both) that will protect the portfolio from more than 10% of a fall.

• The long term portfolio will merge with Smartcaps (not mentioned above). Smartcaps are just four stocks we have liked and they have done reasonably. One stock has doubled, one has fallen about 50%, and the others are just hanging around. The long term portfolio is likely to be interesting in terms of performance in the coming years, and we do hope to see some stocks do very well. But we know that some will do badly too – that’s how the long term cookie crumbles.

• Stratoptions continues as it is, but with lesser transactions (hopefully). We lower the target to 2% a month. We will encourage you to stick around longer if you can take the risk, but we want to reduce operational risk in our portfolios.

• Bond analysis continues in #bonds-and-funds as usual, and there’s some excellent discussions there.

• Arbitrage and other opportunities will come around as we find them.

It’s going to be a great year ahead. Capitalmind plans to build itself as an asset manager, for which the equity structures, investments and growth strategy is currently being worked with.

There’s a lot more coming. Please feel free to ask us any questions!

Foot Notes

The Premium Momentum Portfolio is at http://capitalmind.in/capital-mind-premium-portfolio/.

Our Premium Long Term Portfolio is at http://capitalmind.in/capital-mind-long-term-portfolio/

Our Strong Stock Portfolio is at http://capitalmind.in/the-strong-stock-portfolio/

Note: This is not portfolio advice. Consider this a very risky portfolio and proceed at your own risk. At Capital Mind Premium the reason we have a portfolio is to demonstrate our commitment to our analysis, and we track it closely. It is not meant to be a recommendation for anyone in particular, primarily because we don’t know your risk profile.

Holdings: Analyst and family do own some of the positions listed above. Please assume we are biased.

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