Wright ❤ Smallcaps

The equity markets during 2013–18 witnessed the most spectacular smallcap rally where stocks doubled their value in a matter of days like it was nobody’s business. Smallcap investing is one of the most active investment themes in the Indian markets, with strong smallcap companies being recognized for their worth by institutions & FPIs, and creating breathtaking stories in the process.

I sat on the trading floor at a big brokerage house during the last smallcap bull run and saw this from the front seat, every one of us in the market was picking multibaggers and many of us doubled our bonuses by investing in these gems till the rally finally stopped in 2018.

In 2020, post COVID, in the recovery rally in the markets, we see a similar rally and I cannot help but dig back my old passion for smallcap strategies to get this flavour. The recent notification of changes in SEBI regulations for mutual funds, calling for greater participation by multi cap mutual funds in smallcaps has also consolidated this rally and hopefully the smallcap upcycle continues in full swing.

Our subscribers know that Wright has been publishing flagship “Multi Factor Tactical” strategies for more than a year now that focuses on long term steady market beating returns as the core of the offering. We have decided to offer a smallcap strategy as a satellite portfolio to not miss out on this irresistible rally.

Stock Selection

The criteria for selecting stocks in this portfolio are:

1. Intrinsic Value— Intrinsic value is a measure of what an asset is worth. We evaluate the economic value added per share and relative value
2. Quality— We look at scores like Piotroski score and ratios like Return on Capital Invested, Solvency ratio etc to determine this
3. Earnings Growth— We look at earnings growth, revenue growth & metrics like G score
4. Momentum— We look at long term & short term momentum, breakouts to evaluate this
5. Low Volatility— We look at long term & short term volatility to determine this

Portfolio Construction

We use some advanced statistical concepts for the final selection of stocks that are based on the above criteria.

Performance

So here’s how the performance of our smallcap startegy looks historically (in the backtest)

This portfolio launched as a satellite portfolio on top of our core offerings a way for us to give our investors a chance to take advantage of the high growth smallcap rally. We understand that that smallcaps are already at high valuations but with the liquidity being pumped in the system by central banks and the regulatory support there is a potential for growth.

Here’s hoping for fireworks ahead!