2024 in Review: Insights from Windmill Capital

The year 2024 was a rollercoaster for financial markets. Investors experienced notable changes in indices and portfolios, driven by global economic shifts and localized growth narratives. We’ve analyzed these trends at Windmill Capital to comprehensively review the year’s performance, including insights from our webinar on investment strategies and frameworks.

Watch the full webinar here.

Performance of Key Indices

2024 witnessed notable performances across indices, influenced by both global and domestic factors. Here are some highlights:

• Large-Cap Dominance: Large-cap equity showed resilience and significant growth despite periodic market volatility.
• Small-Cap Volatility: While offering high returns, small-caps continued to demonstrate elevated volatility, rewarding long-term investors with disciplined strategies.

*As of Dec 19th 2024

Best and Worst Performing smallcases

Best-Performing Smallcases:

• Quality Smallcap Smart Beta (QSSB): With a CAGR of 41.1% and a risk-adjusted return of 1.7x between Dec 20-Dec 24, this smallcase capitalized on small-cap stocks with positive momentum trends. The proprietary quality score—assessing management effectiveness, financial strength, and earnings consistency—helped identify high-potential stocks.

• The Quality Smallcap Smart Beta (QSSB) Over the past four years, only 77 stock positions have been added or removed from the smallcase, emphasizing its stability and selective approach. On average, stocks are held for 145 days, with the longest holding period extending to 626 days and the shortest being 8 days. This disciplined churn and holding strategy aligns with QSSB’s goal of capturing consistent, quality-driven returns while minimizing unnecessary portfolio turnover.

• Low Risk Smart Beta (LRSB): Delivering stable returns with lower risk, LRSB’s strategy of focusing on low-volatility stocks resulted in an 18.5% CAGR between Dec 20-Dec 24. This approach highlighted the importance of weighting portfolios by volatility instead of market cap. Volatility-weighted portfolios allocate more to less volatile assets, reducing overall portfolio risk. Hence they are generally less exposed to sharp market downturns compared to market-cap-weighted portfolios.

• The Low Risk Smart Beta (LRSB) smallcase exemplifies stability and a long-term investment approach. Over the past several years, only 43 stock positions have been part of this portfolio, showcasing its disciplined and selective nature. Stocks in the LRSB are held for an average of 574 days, with the longest holding period reaching an impressive 1,645 days and the shortest being 91 days. This strategy highlights the smallcase’s emphasis on minimizing volatility and enhancing risk-adjusted returns through consistent and deliberate stock selection.

While some portfolios experienced drawdowns due to global economic factors like the ongoing Russia-Ukraine crisis, the broader recovery in the Indian growth story helped mitigate prolonged underperformance.

Windmill Capital’s 4-step framework to selecting to choose the right portfolio

Windmill Capital’s comprehensive 4-step Investment Framework provides a structured approach to selecting the ideal portfolio for your investment needs : :

1. Understanding risk profile

Risk profiling is essential to align your investments with your financial goals, risk tolerance, and situation. It helps tailor a personalized strategy, ensures financial security, improves decision-making, and guides optimal asset allocation. By assessing your risk capacity, it prevents mismatched expectations and helps you achieve your goals with confidence and peace of mind.

2. Investment theme

Consider the portfolio’s theme and ensure it aligns with your goals

3. Volatility

Analyze the portfolio’s volatility and risk-adjusted returns carefully. Volatility indicates the extent of price fluctuations in a portfolio, while risk-adjusted returns reflect the returns achieved relative to the risk taken. When selecting a portfolio, avoid base-period bias by assessing metrics like rolling returns, maximum drawdown, and beta over a consistent time frame.

4. Costs

Before choosing a portfolio, understand the cost structure and level of transparency. Hidden fees can significantly eat into your returns.

Looking Ahead

As we step into 2025, the lessons from 2024 will remain invaluable. Markets may remain unpredictable in the short term, but disciplined, data-backed investment strategies can help investors stay ahead. At Windmill Capital, we remain committed to delivering expert-curated portfolios that align with evolving market trends.

Ready to make your next move? Explore our range of smallcases and take control of your financial journey.

Watch the Webinar | Explore smallcases

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary.Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.