The Multibaggers of Momentum

We started Wright Momentum almost exactly two years ago, in November 2020, in a market ripe for Momentum investing. Momentum has been my favourite strategy to work on in the markets since I witnessed the 2013-14 bull run. So I started this strategy with giddy excitement, and the reception that momentum has received has also been beyond exciting.

So this week, we are celebrating the power of momentum investing with the Wright Research edge. We’ll explore how momentum has looked for the investors, the performance, the multi-baggers, the hits and the misses.

But before we start, what exactly is a Momentum investing strategy?

Momentum Investing means investing in stocks that are forming solid trends. When picking these stocks, Momentum is not concerned about the fundamentals but the trend's strength.

This seems a little strange, but if you understand the behaviour of investors in the markets, it all makes sense. Investors do not react rationally to any announcement of a change in value. There is initial underreaction when only a few investors jump into the stock, but as more and more people start herding into a stock, that is when the string trend forms.

Momentum Investors are trying to catch these trends, and we trust such trends to deliver long-term outperformance over the index.

The Performance

Wright Momentum has had a spectacular run in the last two years. As a result, many investors trust us, and we have delivered a 52% CAGR or 124% net returns in the previous two years.

The first year for Wright momentum was a dream run, with almost 100% returns within a year, but in the last 12 months, we have been tackling volatility, but still have fared much better than the index.

The Multibaggers

In this run of 124% returns, Wright Momentum has had eight stocks turn multi-baggers, and three of the multi-baggers have been in the portfolio for the whole two years. If we look at the distribution of the stocks in the portfolio, we’ll see that the average return has been 39% for the stocks, but the distribution is skewed by only a few stocks that have turned multi-baggers.

The Multibaggers in our portfolio will be widely recognised. But, as I said, Momentum stocks have had many investors herding them, so many of us would already know of these stories.

Our top performer of the pack has been Adani Enterprises, followed by Tata Elxsi. Both of these stocks have been part of our portfolio for two years, even though we offloaded Tata Elxsi at the beginning of November.

Adani Total Gas is the third multi-bagger of the pack, followed by another street favourite, Tube Investments. Finally, Deepak Nitrite is our fifth multi0bagger, even though we quit that stock a few months ago.

How long do we hold the stocks in our portfolio?

While we saw some examples of multi-baggers which we have held on to for two years, the average holding period of the portfolio had been four months. Again the distribution is skewed by a few long-term holdings while a more significant number of stocks are churned much more quickly.

Current Allocation & Outlook

Our portfolio is highly allocated towards the Automobile and Banking and Financial Services sectors, with some additions in cyclical stocks that have come in recently. Banking and Financial services have turned the market’s favourites with fantastic earnings and strong projections. We see this sector to be strong soon. Consumption saw a boost in the festive season, and in a moderate inflationary environment, we expect autos, electronics and consumer discretionary to continue to be strong. We are also excited about the domestic cyclical due to the rising CAPEX in the economy, which makes us bet on logistics, oil & gas and other linked sectors.

How to invest?

Wright Momentum is a popular investment strategy on the smallcase platform. If you’re looking to invest via the smallcase platform, please use our microsite. This enables Wright Research to retain a higher percentage of the subscription fee. Here’s our link: https://wrightresearch.smallcase.com/smallcase/WRTNM_0001

If you’re interested in checking out the direct execution using the Wright Research website, here’s the link to the portfolio on our website: https://www.wrightresearch.in/portfolio/momentum/

Here’s a quick video showcasing how you can use the Wright Research website to make a full investment using the broker gateway:

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