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.
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.
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.
Senior Director, Windmill Capital | The content in this article is purely the author’s personal opinion and is for informational and educational purposes only. It 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.The views and opinions stated in the content belong to the author. Windmill Capital Private Limited does not uphold nor promote any of the views / opinions. | Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645)
A mix of value as well as momentum can be an ideal combination when it comes to stock investments. Invest in this smallcase to get exposure to undervalued stocks that are witnessing momentum in their price.
Though smallcases look better in terms of costs and returns, they come with a prerequisite of market knowledge. And investors who have the requisite knowledge to manage their own portfolio can consider investing in smallcases. Else they are better off investing in mutual funds.
Value investing starts with determining a security's intrinsic value, buying it when the price is lower by a pre-determined margin, because eventually its price and value will merge. Momentum investing suggests that stocks whose prices have increased for a period of time will continue to increase.
Smallcases are usually themed and limited to 10–15 stocks. Some argue that this can lead to overly concentrated portfolios. Concentration risk occurs when a few stocks determine the fate of your entire portfolio.
cons: Since smallcase holdings are just logically seperated in Kite Holding , if one someone sells stock bought through smallcase through kite then PnL of SmallCase would go for a toss …so when buying is allowed though smallcase only selling should be restricted through smallcase only.
Reversals in the market: Since trends are not permanent, there is a constant risk that the market might change direction, resulting in potential losses for momentum investors. Momentum investors purchase stocks that have experienced recent price increases, anticipating the continuation of the upward trend.
User can also partially exit an invested smallcase by withdrawing some amount from the smallcase. User can only withdraw amount upto the extent that the remaining amount in the smallcase is greater than the minimum investment amount of the smallcase, as per the current weighting scheme of the user's smallcase.
To start investing with smallcase, or make other investments in the stock markets, you'll need a broker account. On smallcase, we've partnered with India's top broker so that you can take your pick and get started. Popular brokers include the likes of Zerodha, Upstox, Kotak Securities, HDFC Securities, and more.
This platform offers a seamless and hassle-free way to invest in the stock market, with minimum paperwork and low fees. Whether you're a seasoned investor or a beginner, smallcase offers 500+ readymade stock baskters for every need, and can help you create a well-diversified and customized investment portfolio.
Is momentum a sound investment strategy? Momentum investing works when you can identify price trends and ride bullish securities to higher heights. However, earning consistent returns with the strategy is much more complicated than it sounds.
In essence, momentum strategies perform when prices continue in the same direction while the value approach delivers when prices move in the opposite direction. For that reason, the approach to combine the two strategies helps to manage risk.
smallcase is backed by Rainmatter Capital, which in turn is backed by Zerodha, which also incubated the startup. "Our speciality is the curation done by creators or RIAs on our platform.
Mutual funds offer professional management, making them suitable for those seeking a well-rounded investment approach. On the other hand, smallcases offer thematic investing, transparency, and lower costs, catering to investors looking for focused exposure and more control over their portfolios.
A mix of value as well as momentum can be an ideal combination when it comes to stock investments. Invest in this smallcase to get exposure to undervalued stocks that are witnessing momentum in their price.
Momentum indicators are also specifically useful, as they help traders and analysts spot points where the market can and will reverse. The points are identified through divergence between price movement and momentum.
Momentum investing can work, but it may not be practical for all investors. As an individual investor, practicing momentum investing will most likely lead to overall portfolio losses.
Introduction: My name is Neely Ledner, I am a bright, determined, beautiful, adventurous, adventurous, spotless, calm person who loves writing and wants to share my knowledge and understanding with you.
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