Should you invest in Capitalmind's Allcap Momentum stock basket?

Paytm Money, a wholly-owned subsidiary of One97 Communications (which owns the brand Paytm), is now offering Deepak Shenoy-founded Capitalmind's Allcap Momentum portfolio. With its advisory marketplace, Paytm Money in partnership with WealthDesk offers retail investors an opportunity to invest in ideas, themes or trading strategies. The marketplace has now grown to include four advisors and 20 portfolios.

Curated investment portfolios

Paytm Money has partnered with WealthDesk to offer curated investment portfolios called WealthBaskets. As you may be aware, the readymade investment portfolios market already has smallcases by smallcase technologies, Stockbaskets (Samco Securities), One Click Equity (ICICI Direct), Theme Investing (Fyers) and Intelligent Advisory Portfolio (Motilal Oswal), to name a few.

Each WealthBasket is marketed as a research-backed mix of stocks (or ETFs) which aim to give you diversification. They are managed by SEBI registered professionals.

For investors, Paytm Money is the transaction platform. WealthDesk is Paytm Money's technology partner for WealthBaskets.

What is Capitalmind

Deepak Shenoy founded Capitalmind in 2014, which is a SEBI registered portfolio management service (PMS). The firm presently manages over ₹650 crore in assets and advises on ₹1,000 crore in its PMS, as per Paytm Money statement.

Also read

Should you go for WealthBaskets on Paytm Money?

The firm adopts a quantitative approach towards investing and creates portfolios based on algorithms that have been extensively tested. The company has a 25+ member team. There are two fund managers of the firm (Deepak and Anoop Vijakumar). Capitalmind has 600 clients.

Capitalmind manages the Allcap Momentum portfolio on Paytm Money platform.

Strategy specs

The Allcap Momentum portfolio will have 15-25 stocks and aims to capture the momentum factor. Simply put, it’s an algorithmically picked portfolio of stocks based on price-momentum. Stocks are weighted according to their rank and volatility compared to other candidates. Paytm Money users can invest in the Capitalmind Allcap Momentum portfolio by paying a subscription fee (₹12,000 per year).

Apart from the subscription plan fee, regular brokerage including taxes, may be charged during transactions. Payment gateway charges may be applicable depending on the subscription fee payment mode.

The minimum investment is ₹1 lakh, while the recommended sum is ₹3 lakh. Investors will get regular rebalancing updates on the portfolio. The re-balancing frequency will be monthly (first Monday). Each rebalancing may involve tax implications. There are no restrictions on withdrawal, at the moment. The stocks forming part of your chosen strategy reside in your demat account.

This portfolio being offered by Capitalmind has shown a return of 57 per cent since inception Dec 31, 2020), which is quite higher than Nifty 100's 20 per cent in the same period. In the 1-year period, Allcap Momentum has returned over 34 per cent vis-a-vis 18 per cent for Nifty 100. Investors should not, however, get carried away by these numbers given the relatively shorter track record.

While the flat-fee pricing approach is affordable for investors with higher wallet size, the ₹12,000 fee for₹1 lakh portfolio is 12 per cent annual cost or for ₹3 lakh portfolio is 4 per cent annual cost. Thus, the fee is more ideal for investors with bigger capacity to invest i.e. over ₹5-6 lakh.

Momentum investing

The trend is your friend in momentum investing. For the uninitiated, momentum factor refers to the tendency of winning stocks to continue performing well in the near term. Globally, factor investing, and particularly momentum as a factor, has caught investor attention over the last decade.

In mutual funds, there are only a handful passive products (UTI Nifty200 Momentum 30 and Motilal Oswal Nifty 200 Momentum 30) that are momentum-driven. Typically, the normalised momentum score for each company/stock (from the investible universe) is determined based on its 6-month and 12-month price return, adjusted for its daily price volatility. If you take into account return and volatility, then the portfolio manager can picks stocks that have not only moved higher, but also those that are also less volatile. Without taking into account volatility, they could pick stocks moving in fits and starts.

Momentum investing has showed the ability to steadily outperform broader indices such as Nifty 50 and Nifty 100, especially during market rallies. However, the performance takes a hit during corrections or flattish phases. This is the issue with any momentum strategy, as it is not a downside containment approach. Some fund managers are known to move into cash when momentum opportunities don't exist or use gold or bonds to hedge risk during sharp market declines.

Who can consider

Momentum investing strategies, be on stock basket platforms or mutual fund space, are based more on behavioural economics than fundamental company/stock analysis. This should be well-understood by investors who want to ride the momentum. Of course, different portfolio managers conduct hygiene checks and deploy risk mitigation strategies so that they don't buy duds.

Momentum investing will entail more frequent churning of portfolios than a buy-and-hold approach. So, you should be comfortable with the idea of buying and selling on the rebalancing date. For smaller investors, mutual funds may be a more cost-effective way to experiment with momentum strategies. Curated portfolios can of course deliver much higher alpha, but come at a higher cost for small investors.

But do understand that if the timing is wrong there will be heavy drag on portfolio return.

COMMENT NOW