What's the hype about Value and Momentum? - smallcase (2024)

Among thousands of users who have subscribed to smallcases offered by Windmill Capital, the Value & Momentum smallcase is a fan-favorite. Over 85% of our users have subscribed to the Value & Momentum smallcase. But why is Value & Momentum smallcase favored by users? Let’s understand that in detail today.

Understanding the Factors at Play

The Value & Momentum smallcase is a brainchild of Windmill Capital, that has captured the attention of investors who are seeking value companies witnessing momentum. Before diving into the smallcase itself, let’s establish the foundation. Factors are the driving forces behind stock returns. There are different kinds of factors – macroeconomic and style-based. Volatility, size, quality, and momentum are different types of style factors. The Value & Momentum smallcase capitalizes on two such factors:

• Value: The core principle is to invest in undervalued stocks relative to their fundamentals. These stocks are believed to have the potential for significant price appreciation in the long run.
• Momentum: This factor focuses on stocks that have been experiencing recent price hikes. The underlying assumption is that this positive momentum is likely to continue.

The Value & Momentum smallcase boasts immense popularity. A staggering 85% of Windmill Capital subscribers have subscribed to it, making it their most sought-after offering. But what makes it so special?

A Multi-Cap Approach with Unique Selection Criteria

The Value and Momentum smallcase picks stocks based on these key points:

• Fairly Valued: The company’s stock price isn’t too high compared to its actual value.
• Strong Earnings: The company’s earnings per share (EPS) were higher than analysts predicted for the previous financial year. This shows the company is doing well financially.
• Rising Stock Price: The company’s stock price has been increasing faster than the Nifty 50 index.

While the smallcase isn’t restricted by market capitalization, the stock selection criteria often self-selects small and mid-cap stocks due to their inherent undervaluation, offering growth potential.

The appeal of The Value and Momentum smallcase

The Value & Momentum smallcase offers several features that may be attractive to investors:

• Affordability: This smallcase is affordable making it accessible to a wider user base.
• Long-term focus: The ideal investment horizon to reap the benefits of this smallcase would be between 5 to 7+ years. This may align with users planning to build wealth over an extended period.
• Historically low churn: The smallcase has a history of maintaining a relatively stable portfolio composition, potentially reducing transaction costs for users during rebalance.

That said, it’s important to understand that this smallcase focuses on mid-cap and small-cap stocks. These companies typically experience greater volatility in their stock prices compared to large-cap companies. This increased volatility may not be suitable for all investors, particularly those with a shorter investment horizon or a lower risk tolerance.

Beyond the Basics: Avoiding the Pitfalls

To safeguard investors, Windmill Capital utilizes a “negative list” as a screening tool. This list incorporates five key parameters:

• Market Capitalization: Only the top 750 most liquid companies are considered.
• Promoter Pledge: Companies with high promoter pledges, indicating potential conflicts of interest, are excluded.
• Liquidity Filter: This proprietary filter checks how easily a stock can be bought or sold. Liquid stocks have lower transaction costs and investors can enter or exit positions without causing drastic price movements.

Default Probability & Red Flag Filters: Dropping companies based on a high probability of default, presence in NSE ASM/GSM list, etc, ensure only stable & going concern companies are included in the portfolio.

Owning the Value & Momentum Advantage

The Value & Momentum smallcase offers distinct advantages:

• Reduced Drawdown compared to smallcap stocks: The value component helps mitigate the impact of market corrections, preventing your portfolio from taking a deep dive compared to the universe of smallcap stocks.
• Enhanced Diversification: This smallcase acts as a dynamic satellite portfolio component, complementing your core holdings and potentially generating alpha, or excess returns. However, remember, higher alpha often comes with higher risk.

In Conclusion

The Value & Momentum smallcase has carved a niche for itself in the investment landscape. Its multi-factor approach, meticulous stock selection process, and risk-mitigation strategies make it a compelling option for investors seeking growth potential with a touch of stability. So, if you’re looking to diversify your portfolio and potentially generate alpha, the Value & Momentum smallcase might be worth considering. But remember, thorough due diligence and a high-risk tolerance are crucial before taking the plunge.

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 pagehere.