Can anyone suggest how to step by step construct a momentum portfolio? Thanks.
OK
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simplest way (which I follow) is to invest in Mutual fund based on momentum strategy
Currently there are two AMCs which offer fund based on 200 momentum 30 index. This will give (some) benfit of momentum and investor don’t have to pay short term/long term taxes with churn in underlying portfolio
More about index https://www1.nseindia.com/content/indices/Nifty200_Momentum_30_Index_Whitepaper_Sep_20.pdf -
If you are DIY investor you can still exploit this index. How stocks are selected and how momentum is calculated for this index is mentioned in
https://www.niftyindices.com/Methodology/Method_NIFTY_Equity_Indices.pdf
you can have your own variant of it and you backtest strategy which suits your risk profile
e.g. combination of any of following to tweak in 200 momentum 30 methodology to create customized index.
a. Instead of re-balancing semi-annually, re-balance or re-calculate every month/bi-month
b. Increase the stock universe from 200 to say 500
c. The index, punishes the stocks with higher deviation. You may choose not to punish at all ,
d. The index has max cap for individual stock. You may chose not to put max cap individual index to exploit momentum fully.
e. Index has fixed 30 stocks. You may choose 15, 20,40 depending on how much capital you may want to deploy
f. during bear marketmomentum may not work, you may choose to move entire stockpile to debt, say when… nfity50 goes below 200 DMA and comeback again when conditions are ripe
Backtesting for suffciently long duration can throw light on gains and drawdowns
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Thanks.