2017 was a good year for the financial markets. Save for a few, almost every stock market registered gains. Our own markets weren’t different with both Sensex and Nifty 50 closing the year with gains of 28%.

Demonetisation led to some weakness in the market, but in 2017 seems to started off the bottom. Goods and Service Tax which had been in the works for more than a decade finally came about in July 2017.

At Capitalmind, we currently have four portfolios on four different ideologies. Momentum, Long Term, Dividend Yield and EV portfolio. We are happy to say that all of them have performed better than the benchmarks showcasing addition of value.

We compare with the Nifty Total Return Index. This involves reinvestment of dividends for the Nifty, but we have not considered dividends in our portfolios (except in Dividend Yield portfolio). So, for some part, the post-dividend return will likely be about 0.5% to 1% more.

The Momentum Portfolio

The year 2017 belonged to momentum. With markets showcasing low volatility and continued uprise, it wasn’t much of a surprise. The Capitalmind Momentum portfolio came into existence on 01 Dec 2013. We have tried various strategies in momentum and the current portfolio is the fourth refined version of earlier momentum portfolio versions. The result has been incredible, the portfolio has given an astounding returns of 4x in 49 months, while the benchmark Nifty 50 has given only 81% returns!

The momentum portfolio underwent changes during last year. Momentum 2.0 was closed down to make way for Momentum 2.1. At the time of exit, Momentum 2.0 had gained 24% in the six months it was active.

The new Momentum 2.1 was started on 6th June 2017 and consisted of 30 stocks all equal weighted and with a portfolio size of 1.8 Lakhs. We have reduced the churn rate and rebalance the portfolio on every first monday of the month. Momentum 2.1 has given a return of 30% in 7 months.

Note: Portfolio NAVs as on 16th Jan 2018

If we look only at 2017, our return was more than 67%, which is a fair bit higher than all the indexes out there. Momentum as a factor in investing has been a much discussed and researched topic. At its very basic, the idea is to ride the winners and cut the losers.

Stocks like Rain Industries (226%), Vakrangee (120%) and Minda Industries (105%) have given us more than 100% returns since inception of Momentum 2.1. Most of these stocks started with their portfolio weight being around the 3% mark but today have a much higher weight thanks to the huge outperformance we have seen. Rain is now nearly 10% of the portfolio!

If we consider stocks since Momentum inception, Strides Arcolab (163%) is another stock which will fit in the list, but that was a while back. We cannot always have a winning run, their were some laggards as well. Divis Lab got hit the tune of 30% and we had to exit, after adverse news of an FDA change.

The momentum portfolio’s returns come with a certain level of risk too. The maximum drawdown for Momentum as a portfolio has been: 13.71%. This is normal – every portfolio will have ups and downs.

Long Term Portfolio

Capitalmind Long Term Portfolio is a Multi Cap Portfolio designed for investors who cannot be as active as strategies like momentum requires and yet generate returns better than what could be generated elsewhere.

Stocks are selected carefully considering their fundamentals, valuation and supporting macro economic factors. The portfolio is intended to have lower churn rate and have higher holding period.

Long term portfolio started in November 2014 with just 4 stocks and now it is at 24 stocks. We have exited 15 stocks since the inception of the portfolio. The average returns of all the stocks we have exited is at 29.10% and average holding time of the exits is at 485 days.

Below is the performance of our long term portfolio on NAV basis.

Note: Portfolio NAVs as on 16th Jan 2018

Since the inception in Dec-2014, the portfolio has given 87% returns (in absolute terms). The portfolio grew at the rate of 21.93%. The best multi cap fund out their in the market has done 20.25% CAGR on 3 year time frame. And remember we have not considered dividend while evaluating the portfolio returns. (Mutual fund NAV’s comprise dividend reinvestment as well)

Their have been some unicorns which have driven the portfolio on a overall basis.We have 7 stocks which have given more than 100% returns since we bought in our long term portfolio. Stocks like Sudarshan Chemicals ( 330%), Supreme Petrochem (250%), Aegis Logistics (180%), Artemis Hospital (164%), Gujarat Alkali (145%), Garware Wall Ropes (105%), PTL (105%) and Motherson Sumi (102%) have prove to be a worthwhile buy. (PTL and Artemis are the same stock, that demerged, so we can count those together as one)

Not all stocks have gained with several stocks disappointing with their earnings and future forecasts dragging down the portfolio performance.

Stocks like Sintex Industries(-38%), Sunpharma (-40%), IDFC (-38%) and Strides Shasun (-25%) have proved to be deadweights. Some of the above stocks we still hold since we believe that while the short term looks bad, they are worth holding for the longer term.

The maximum drawdown of this portfolio was about 28%. Given the longer term nature of this portfolio, there’s no reason why a 28% would be unacceptable, but you should know that this is the kind of volatility it has seen.

Dividend Yield Portfolio

Dividend Yield Portfolio was kick started for investors who firmly believe in cash flows along with growth in portfolio size. The portfolio is tricky to design as we need to take care of cash flows as well as stock growth. In most cases we cannot be assure whether the firm gives dividend or not. It’s only based on previous history and the stocks future growth we consider the stock in the dividend yield portfolio.

Div Yield portfolio came into shape in Jan 2016 and since then it has given the best combination of growth and cash flows on can get. The portfolio has given 89.4% since its inception (We are not reinvesting the dividends), while the benchmark Nifty Dividend Opportunity gave us  46.7% returns.

Note: Portfolio NAVs as on 16th Jan 2018

The current portfolio consists of twelve stocks.The portfolio has not undergone many changes and we took off two stocks from the portfolio. Noida Toll bridge was one. Noida Toll though had been paying good amount of dividends but the stock crashed after Allahabad court ruled against its favour and it lost the only asset it had; and the stock came crashing down. A second stock which we took off was Canara Bank. Canara Bank had given us a capital gains of 57% returns since we bought it, but was unable to pay dividends to investors, thus removed.

Other stocks in our portfolio have yielded much better combination of dividend and growth. Some stocks have given dividend yields more than 10%(absolute basis) since we bought it, viz. NMDC (17.7%), REC (16%), Coal India (14.17%), PFC (13.35%), Indiabulls Housing Finance (10.3%) etc. The best performers in terms of dividend yield + capital gains are, Indiabulls housing finance (10.3% + 91%), VST Industries (8.52% + 82%) and  NMDC (17.71% + 58.17%).

EV Portfolio

EV Portfolio is a theme based portfolio we have created at Capitalmind. The reasoning behind the portfolio being evolution of automobiles into all electric platform from existing internal combustion engines. The portfolio consists of stocks which will form a greater part of the ever evolving electric vehicle industry in coming formative years.

The portfolio is intended for longer term play, but if the stocks are not doing much in the EV space in coming years, we intend to take them out and replace with new stocks which show greater promise in EV industry. The stocks might be in varying fields like providing EV infrastructure to battery manufacturers but at the end of the day, they will be playing a greater role in EV industry.

We currently have nine stocks in  the portfolio. The portfolio was designed  to have SIPs rather than one time investment. The SIPs have been of Rs 30,000 every quarter.

The portfolio came into existence in August 2017 and since then the portfolio has given stellar returns of 48.3% in just about 5 months.

Note: Portfolio NAVs as on 16th Jan 2018

Stocks like Graphite have given more than 2x returns in last five months. HSCL (80%) is another stock which has been the reason for portfolios astounding performance. While stocks like Igarashi (-6%) and Hero Motors (-4%) has failed to take off, we are unperturbed by the short term returns and we continue to invest in the portfolio as the portfolio is more of longer term play rather than short term returns.

Capitalmind Current Portfolios Performance Since Inception

Note :Portfolio NAV returns as of 01 Jan 2018

Capitalmind Portfolio Performance in CY17.

The benchmark Nifty 50 has given 27% returns and Sensex at 28% returns in CY17. The broader Nifty 500 TRI has returned 38%, and the Nifty Next 50 (“Junior”) TRI is at 49% for 2017 as is the Nifty Midcap 100 TRI.

Essentially, every single Capitalmind Portfolio beat all the major indexes out there even if you consider dividend reinvestment. (And we don’t add dividends to our returns except for the Dividend Yield portfolio)

All our portfolios have given greater than 50% returns (EV portfolio 40% in four months).

Note: Portfolio NAVs as on 29 Dec 2017.

EV portfolio and Momentum are best of the lot with 40.95% (in five months) and 67.2% returns respectively. Long Term (53.9%) and Dividend Yield portfolio (59.5%) have fared decently and beaten the benchmark indices by a wide margins.

Special Mentions: Experimentals, Buybacks and StratOptions

We have a special set of portfolios for more returns. One was Stratoptions, where we try to generate income from the volatility in the options market. Essentially, markets overestimate future volatility and pay too much of a price for it. We’ve been doing things in the #experimental channels on Slack that take advantage of this. We even built a Stratoptions tool for you that does enough of it visually!

Till August, the Vanilla Statoptions process had generated about 9.2%. But after that we went for more on the stock option portfolio, which has returned significantly higher, but with more risk. We’ll evaluate this in a separate post.

Another portfolio we are experimenting with is “Mad Momentum”. We started it in September 2017. Only stocks using Snap Outliers. Only long. Only 10 positions. Held with the attitude that it better move fast, or it’s gone.  The returns were excellent (see the mid-year post here)

We ended the year on it with about 30%. Not as great as, say, the EV portfolio, but then, it is a portfolio that consistently books profits.

The last one to mention is Buybacks. You can see the portfolio here. This portfolio just uses company buybacks and a special regulation for people who invest less than Rs. 200,000 to get a benefit of high acceptance ratio.

This portfolio has returned 78.7% since inception (Jun 2016). Out of this, over 58% has come only in 2017, with trades in Wipro, Infosys, TCS, HCL Tech, Mphasis and Jagran. It’s been good as goings go, but the trades are getting a little crowded with every broker now spreading this to their clients.

The Year Ahead

Momentum continues to exist, and our portfolio will, too. It’s stagnating in Jan, due to a battering of midcaps, but we’ll keep at it and change stocks every month.

Long Term: this is a tough one. We’ve trimmed a few stocks. We’ll probably trim more. Because there’s very little long term value in the market. We are likely to add more when markets crash, or after the results season when we know how well earnings have moved.

Dividend Yield will remain a small untouched portfolio unless we find good additions to it after the budget.

Electric Vehicles keeps us looking for good EV plays. This will continue with investments every quarter.

Experimentals and Buybacks continue. We have had some excellent trades in January already, with options themselves returning more than 7% in the month so far. A new buyback trade is on, and Mad Momentum is still going mad.

We hope to bring you a great return even this year. It’s been fun running virtual portfolios all this time, and now real ones with the Capitalmind Wealth PMS. Over time, stocks are a way to get a phenomenal return, but in the meantime, there will be volatility, and we expect some on the downside. It’s going to be a great year, either ways, and lots of learning at Capitalmind Premium!

NOTE: Please do not consider this article as a recommendation, It is purely for informative purpose only. Authors may have positions in the stocks mentioned, so consider our analysis biased. There is no commercial relationship between Capitalmind and the companies mentioned in this analysis.

Foot Notes

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

Our Premium Momentum Portfolio 2.1 is at https://capitalmind.in/momentum-portfolio

Our Premium DivYield Portfolio is at https://capitalmind.in/capital-mind-premium-divyield-portfolio/

Our Premium EV Portfolio is at https://capitalmind.in/capitalmind-ev-portfolio/

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