Smallcap momentum portfolio

Hello everyone , i am doing these momentum strategies for almost 3 years now , i wold like to share my experience

• I run these strategies on cnx200 and smallcap 250 ,
  Pros
• when market is in good swing , you make extremely good returns – ( this fy cnx200 returns are north of 80%)
• There is not much to think and just follow a plain approach which does the job , already listed in the forum above
• You automatically find the best sectors and ride the full trend without even looking at charts
• position sizing and shifting from one stock to other is very easy as most of us are retailers here

Cons –

• when the momentum ends we loose most of the gains – eg if we hold a stock at 5% initial then it can become 10 or 15 % of weight at some point of time … booking out the gains is very importat at that point as if this stock corrects it hits the portfolio the most
• the bear and sideways markets , well i have spent a lot of time on this and my view is you should exit / partly exit in case of bear markets . Momentum portfolio will do extremely bad in these kind of markets , either take an technical exit or a exit based on market breadth or gold to equity ratio or find something which gives a exit signal
• SIP vs lumpsum – i have had difficultly with when to add capital once a move starts and hence i advice people to go with lumpsum investment with these kind of portfolios , see if a stock moves 2x … why would i add to it ? , instead what i do is … i only add to the newcomers into the portfolio whenever i want to add capital . it helps with peace of mind
• Tax – these are mostly short them investments and hence 15% tax rate we have to give every year despite reinvesting the profits . this makes a dent on overall returns compared to sip where only long term tax (10%) is taken

To conclude , momentum portfolios are good to support overall return of a portfolio only if you know when to exit . The last 10 years backtest has given me almost 4% additional cagr ( approx 19 to 20% ) compared to traditional investment like sip … also if you have exits the drawdown is pretty low compared to MFs .