Momentum Portfolio June 2021: A Spectacular Month with bumpy roads ahead

Momentum Portfolio June 2021 Performance Update

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently

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We are running this portfolio strategy for the past year successfully for our clients. And with the completion of one year, we are launching this strategy publicly for everyone to participate in with the launch of our monthly factsheet. And as promised we will be regularly updating the monthly performance update and our clients can get early access 1-2 days before publishing this monthly post on the website so they can rebalance their portfolio accordingly if needed.

Momentum Portfolio June 2021: Performance Update

The below chart shows the performance of portfolio vs Nifty 50 vs Nifty 500

It was a fantastic month for momentum investors and especially new investors.

Indian markets touched another high in the month of June 2021. The Nifty-50 Index ended at a new peak at 15,915.65(+0.89%). But the broader market correction in the late end of June leads to the end of the markets almost flats. Few reasons for the correction were expensive valuation and a cautious note by US Fed, signaling interest rate hikes in FY 2022 due to higher inflation.

On the sectoral front, Nifty IT and Pharma were the top performers whereas Nifty Metals, Banks were the most underperforming sectors ( as already predicted in the May Factsheet ).

Markets were buoyed by the continuous decline in covid cases, pick up in vaccination drive, ease of complete lockdown like restrictions in some of the states. But markets are a little bit concerned due to the US Fed's signal of an interest rate hike which leads to some profit booking from markets high.

Adani stocks were the highlights of the month on the back of news about three FPIs who hold large amounts of Adani stocks. Our portfolio is not holding any of the Adani group's stocks since we were completely aware of the expensive valuation as we have already stated in our Adani Group Explainer Series. But we are now looking at Adani Port as an opportunity.

Momentum Portfolio Top 4 Holdings

Stock NameEntry DateEntry PriceCurrent PriceReturns
Happiest Mind Technologies17th Feb 20214841004107%
Tata Elxsi18th Jan 20212441430476%
ICICI Securities 19th May 202155164016%
Tata Motors DVR11th Jan 202189.9515573%

Should I sell the stocks which enter into correction due to some bad news? - A common query asked by everyone.

Going by the underlying philosophy of momentum strategies which is to buy what's going up, all stocks suggested have been strong candidates over the last year. From a risk-management perspective, our portfolio did not go wrong beyond one or two stocks from this stable and with weightage limits.

Holding a stock that's falling fast can be unnerving. It can draw all of your attention and become a source of anxiety.

So, here's how to think about such cases: Try and avoid thinking about individual stocks, and about the overall portfolio. We specifically cap exposure to individual stocks and the cap for the sector as well for this very reason, so that a deep cut in one or two does not harm the portfolio significantly.

Consider the absolute worst case: Let's say I entered the portfolio on the day stock made it's high, and now if were to go to zero (unlikely hypothetical)? Even in such an unlikely scenario, our exposure in the Momentum Portfolio is under 5%. Most investors should see a lower drawdown on account of the stock.The

Think portfolio, not individual stocks. By keeping weights capped we ensure that the portfolio is not harmed significantly.

Outlook: July 2021

The ongoing weak global macros and rising inflation acting as a key raw material for the headwinds in the near term, which may lead to some profit booking and time wise correction (as already predicted in the May 2021 performance update).
On the Covid-19 front easing of lockdown and increasing vaccination program is creating a positive sentiment among the market participants.
The Q1FY22 results will be the key element to watch out for the impact of second wave on the companies. We are expecting the banking sectors to underperform in the coming months.

Switch back to the outlook for the Momentum portfolio. After more than a year of spectacular returns from momentum-based strategies, it’s easy to imagine them to be the norm and not the exception. We said in our May 2021 update that after another great year that these have been extraordinary times and one should not be surprised to see markets be range bound and stocks specific action is expected, therefore momentum strategies might continue to outperform in the coming month with proper sector and stock allocation.

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