Portfolio Holding Analysis ft. Value & Momentum

In this edition of smallcase in focus, we will put an exclusive spotlight on one of our most popular smallcases – Value & Momentum. Time and again, we have communicated to you about Windmill Capital’s innovative first mindset in order to provide the best service to our investors. We keep tinkering around with all the possible resources with the aim to enhance our research processes and in turn manage our portfolios more effectively. 

While we were exploring different ways through which we can analyze our existing smallcases’ performance, our team developed a dashboard for the same purpose, named – ‘Portfolio Holding Analysis.’ This dashboard has been extremely useful because it helps an analyst dive deep into the analytics of a given smallcase and enables him to take a bird’s eye view approach with respect to the portfolio holdings. Let’s analyze Value & Momentum smallcase.

Starting off with the basic analysis on the holding period stats. Take a look at the table below.

This is an extremely crucial table that gives us information about the nature of holdings in this particular smallcase.

Count – Refers to the total number of stocks that have been a part of the smallcase (since inception).

Mean – Refers to the average number of days a stock is held in this smallcase.

Min/Max – Refers to the minimum/maximum number of days a stock was held in the smallcase.

To summarize, in Value & Momentum, we have had 244 continuous positions across stocks with an average holding period of approximately 5 months (159 days) with maximum holding period for a stock going up to close to 2.2 years (815 days) and minimum holding period for a stock close to 2 months (57 days).

Now comes the interesting bit around individual stocks returns. Let’s take a look at the scatter plots first.

For clear reference, the symbols that you see in the plots are abbreviations for stocks. For instance,  ADRG is Aarti Drugs, DPNT is Deepak Nitrite, FNXC is Finolex Cables, APAR is Apar Industries, NSEN is Nesco, FISO is Firstsource solutions.

Broadly, if one takes a look at this plot, the inferences that can be drawn are interesting. Firstly, if you take a look at the positive return scatter plot, you will notice that our strategy has broadly held onto the winners (high performing stock) for a long period of time. Stocks like APAR, DPNT, FNXC, KNRL, NTPC. This goes on to show that our model has allowed us to carry the winners in the portfolio.

Similarly, if you notice in the negative return scatter plot, you will see a high number of stocks around the 90 day mark, signaling that we have dropped the poor performing stocks promptly and not carried on with the laggards. Even for stocks that have delivered high negative returns, the holding period is not too high.

A very commonly asked query that we receive from our investors is around the period of rebalance. They are of the opinion that momentum smallcases should have a rebalance frequency of 7 days or 15 days, because according to them 90 days is too big a time frame for momentum to carry. And the table attached below will break this myth. 

If you notice, the higher your holding period goes, the higher is the average returns. Therefore, one should not latch on to this misconception that momentum is built to exist for a week or a fortnight. If you identify stocks properly, the momentum on those stocks can exist for a year or even beyond that.  

All in all, one significant point for us to keep in mind is that it is impossible for anyone in the market to be right cent percent of the time. Whether it’s an individual investor or a portfolio manager, the broad aim is to increase your hit ratio or in other words be right more number of times. 

The table attached above is a testament to the effectiveness of our investment strategy. Out of the 244 positions we have taken in this smallcase, we have been on the right side 134 times and on the wrong side 110 times. However, the interesting aspect is that whenever we have been right, it’s been a big win and during times when we have been wrong, the loss is not drastic. You can gauge this with the average returns column, wherein for positive positions the average returns hover around 37% while for negative positions that number is -12%. 

The idea at Windmill Capital is to keep ideating while being innovative. There is a lot that can be done and our focus remains on exploring new ways and techniques to bring the best for you!

_{Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) 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.}