All you need to know about Value & Momentum smallcase

What’s the idea behind the smallcase?

Let us start by first attempting to understand the term factor. A factor is a broad and persistent driver of stock returns. For instance, investors with a greater risk appetite increase their exposure to smallcap stocks. This is because historical evidence suggests that stocks of smallcap companies provide greater returns compared to stocks of large-cap ones. This outperformance compensates for the increased risk of investing in companies that tend to have a lower customer base and ambiguous business models and whose share price is more volatile than that of large cap companies. 

The Value & Momentum smallcase is a multi-factor smallcase that provides exposure to 2 such factors : 

• Value: Inexpensive stocks (relative to their fundamentals) tend to outperform their more expensive peers over the long term. 
• Momentum: Stocks whose price has run up recently will continue to see the further price rise. 

How is this smallcase built?

This multi cap strategy does not place any market cap restriction when selecting stocks. However, since large cap stocks usually tend to be overvalued, mid and smallcap stocks are self-selected into the smallcase. The smallcase seeks fairly valued companies whose reported Earnings Per Share (EPS) for the previous financial year was greater than analyst estimates. In addition, the smallcase only selects companies whose recent price rise is higher than the rise recorded by the Nifty 50 index.  

The Value & Momentum smallcase 

Value & Momentum smallcase by Windmill Capital

Value & Momentum smallcase shortlists are fairly valued, growing companies whose prices have been witnessing positive momentum. During times of market crisis, stocks of fairly valued growing companies do not drop too much and help steady the portfolio. During bullish phases, momentum kicks in and helps the smallcase beat the broader market. 

Aside from the above-mentioned criteria, the research process employed in creating & maintaining this smallcase includes some common features like our proprietary liquidity filters that are applied to remove illiquid stocks, a special check to remove stocks where a significant part of the promoter holdings are pledged, etc.

Note: The smallcase predominantly has a mix of mid and smallcap stocks. A pure-equity strategy like this one comes with the risk of significant drawdowns in the short-term and is suitable for long-term investors with a higher risk appetite.

Who manages the Value & Momentum smallcase?

Windmill Capital builds investment products and curates stock/ETF portfolios to help users achieve their financial goals. We offer over 50 smallcases from high-volatility, pure-equity strategies to low-volatility, asset allocation models.