Finvezto Quality Momentum Portfolio
Overview and Guide
Introduction
Finvezto Quality Momentum Model is the only portfolio we offer. We believe in quality over quantity. Our focused approach allows us to perfect this single, well-researched strategy rather than diluting our efforts across multiple portfolios.
Historical analysis shows the Momentum factor has consistently outperformed across various market cycles, making this model our cornerstone offering designed specifically to beat market indices. So, It is going to be one single portfolio from us for all market cycles.
This singular focus represents our conviction in the strategy's effectiveness for long-term wealth creation.
Investment Rationale
The Finvezto Quality Momentum Model systematically identifies high-quality companies demonstrating strong price momentum at reasonable valuations. The Model is designed with a potential to outperform the Index in the Medium Term (1-3 Years) as well as Long Term(3+ Years).
Key Highlights:
Balanced & Dynamic Portfolio: A selection of 10 to 15 high-quality companies demonstrating strong price momentum at reasonable valuations.
Focused Universe: We target companies listed on NSE with market capitalization above ₹5000 crores, ensuring adequate liquidity and institutional presence while providing exposure across large, mid, and small-cap segments.
Rigorous Selection Process: We use a Relative Evaluation Model that quantitatively ranks stocks based on financial performance/strength, valuation attractiveness, and price momentum to identify companies.
Multi-Factor Advantage: By combining quality, valuation, and momentum factors, the model benefits from complementary investment styles while avoiding common pitfalls of single-factor approaches.
Disciplined Risk Management: We relentlessly cut positions when the model suggests a fall in either momentum, quality or valuation score of a particular stock.
Our systematic & evidence-based approach removes emotional bias from decisions. The idea is to capture meaningful upside while maintaining a strong focus on risk management (we relentlessly cut losses in losing positions).
How are we different and How do we plan to outperform the Indices?
To outperform the Index, we would be doing a few things differently. I have explained it in detail in the below video. It is a must see before you subscribe.
Our service offers a unique approach to portfolio management with a dynamic allocation strategy. We combine systematic stock selection with active risk management to potentially outperform indices while protecting capital during market downturns.
Key differentiators:
Concentration: We maintain 5-7% allocation per selected stock versus the typical 2-2.5% in index funds, enabling stronger returns from high-conviction positions.
Dynamic Risk Management: Unlike Active funds constrained to maintain 65% equity exposure or Index Funds having 100% equity exposure, we flexibly adjust equity allocation based on market conditions and implement strict stop-losses per position.
Momentum-Quality Blend: While index funds hold both high and low momentum stocks, we specifically target high-momentum companies that also meet our quality and valuation criteria, historically providing better upside capture and downside protection.
Why Momentum as the key factor?
There are several factors using which we can construct portfolios - Momentum, Value, Quality, Growth, Low Volatility etc.
Out of these different factors, Momentum has been the clear winner over the years. Performs the best in bull markets and manages to contain downsides during bear markets. Please refer the performance of different factors below.
Momentum gave the Best risk-adjusted performance over the last 14 years with fewer deep drawdowns. Worst year was -16% (2011) compared to Value's -38%.
How we construct and manage the Finvezto Quality Momentum Model Portfolio?
These are the frequently asked questions and we request you to read through them carefully before subscribing.
What is our research methodology?
Our Research focuses on identifying stocks with Strong Financials, Reasonable Valuation, and Strong Price Momentum.
We do this by using a Relative Evaluation Model to rank stocks across Quality, Valuation, and Momentum metrics.
Quantitative scores are assigned to each stock to eliminate and narrow down stocks from the universe.
Final Portfolio Construction prioritizes the top 10-15 stocks with highest rank across Quality, Valuation and Momentum.
This Data-driven methodology ensures disciplined stock selection.
What is the stock universe we operate in?
The Finvezto Quality Momentum Model targets companies listed on the National Stock Exchange (NSE) with a minimum market capitalization of ₹5000 crores.
This carefully defined universe includes quality companies across Large/Mid/Small Cap segments and also across industries/sectors, providing a diverse selection pool.
By establishing the minimum threshold of ₹5000 Cr Market Cap, the model deliberately excludes illiquid and penny stocks from the selection universe.
This ensures investments in companies with proven business models, adequate trading volume & liquidity, and institutional presence.
How do we screen stocks?
Step 1: Eliminate low-quality stocks from the universe.
Step 2: From the high-quality stocks list, we then eliminate stocks with expensive valuations as the potential for a large upmove is limited.
Step 3: From the above list from Step 3, we eliminate stocks that are not showing strong price momentum, both in relative and absolute terms.
Step 4: We have now narrowed down the list to stocks with a minimum acceptable threshold of Quality, Valuation and Momentum.
Step 5: From the above list, we further eliminate stocks with any other red signals.
Step 6: Final Portfolio Construction prioritizes the top 15 stocks with highest ranks across Quality, Valuation and Momentum.
How we allocate weights to each stock in the Portfolio?
The Finvezto Quality Momentum Model allocates 5-7% weightage to each stock position at the time of entry.
This calibrated weighting approach optimizes the risk-reward balance—positions above 7% would introduce excessive concentration risk, while allocations below 5% would dilute potential returns.
We allow winning positions to grow naturally to 10-15% of portfolio value. Exit decisions are triggered by deteriorating momentum rather than arbitrary weight or size limits.
Post-entry position sizing evolves organically based on price action and momentum strength of individual holdings.
The model maintains tactical cash reserves when appropriate, utilizing LIQUIDCASE for capital preservation during limited opportunity environments.
Portfolio composition remains dynamic—we may hold fewer than 15 positions when warranted, such as maintaining 10 stocks at 6% each with remaining capital allocated to LIQUIDCASE.
All allocation decisions respond fluidly to prevailing market conditions, shifting trends, and emerging opportunities.
How we manage risk?
Cutting losses is a critical part of our Momentum Strategy and is non-negotiable. If a position is down by 12-15% from our buy price, we typically look to exit the position. Here are a few reasons:
A Stop Loss trigger is an indication that the momentum thesis we initially identified is no longer valid. When the market tells us something, we listen. This systematic approach removes emotional decision-making from the equation, which is crucial for long-term outperformance.
Taking losses is tough. But think about it this way. When we take a loss we are strategically re-allocating to cash. Holding cash during drawdowns and unfavorable market conditions is also part of the strategy. Minimizing downside risk and safeguarding capital is crucial.
Taking Losses has another benefit too. Suppose we buy a stock at ₹100 and we cut the position when price drops to ₹85. It is better to exit and route the remaining capital to another better opportunity than to hold on to the losing one. Our experience consistently shows that accepting a small, controlled loss is far superior to hoping for a reversal while better opportunities pass us by.
During uncertain times we increase our allocation to cash as opportunities dry out. We need to keep the money we made. It is important too.
We might buy Gold/Silver ETFs during uncertain times.
We review each position on a daily basis to account for unexpected news and other market volatilities.
How We Measure Portfolio Performance? What is your success rate/hit rate?
We take a fundamentally different approach to measuring success compared to traditional analysts. While many focus on "hit rate" or the percentage of winning picks, we believe this metric can be misleading and doesn't capture the true performance of a momentum strategy.
Our Finvezto Quality Momentum Model relies heavily on asymmetric returns - a mathematical approach where outsized gains from a few exceptional performers can more than compensate for moderate losses across several other positions. For example, a portfolio where 7 stocks each lose 5% (total -35%) but 3 stocks gain 20% each (total +60%) would yield a substantial positive return despite a seemingly poor 30% "hit rate." It is illustrated in the graphic below.
What truly matters is the portfolio's overall risk-adjusted performance relative to benchmark indices over complete market cycles. We measure success by metrics like:
Total portfolio return compared to relevant benchmarks
Volatility levels and maximum drawdowns during corrections
Performance consistency across varying market conditions
The asymmetric approach allows us to focus on what ultimately matters: delivering superior long-term results rather than optimizing for an artificially high win percentage that might look impressive but produce inferior actual returns.
How often do we review Portfolio and Rebalance (Stock Entries & Exits)?
We conduct daily reviews of all positions with our model providing clear binary signals for complete entries or exits. This eliminates partial adjustments and emotional decision-making from the investment process.
Rebalancing notifications (Stock Exits and Entries) vary based on market conditions - you might receive multiple alerts in volatile weeks or none during stable periods, but all signals are communicated before market open to ensure timely execution during trading hours.
Following rebalancing notifications promptly is crucial for strategy performance as our signal-driven approach optimizes both returns and transaction costs by responding to actual market movements rather than arbitrary calendar dates.
How frequent is the buying and selling?
Entries and Exits are dictated by the model and are not calendarized or arbitrary. When momentum is fading in a stock we exit and replace it with a new stock showing early signs of momentum. In bullish market conditions we might not rebalance at all. In bearish conditions or sideways markets, we might do frequent entries and exits.
Sometimes there could be a whole month without any change to the portfolio and sometimes there could be 5 changes in a week. It depends on the model.
Having said the above, we expect the Momentum portfolio to have higher churn relative to other factor models such as Value.
On an average, you can expect 3-4 entries/exits every month.
Can I buy only certain stocks from the Portfolio and avoid some stocks?
Our momentum model selects stocks as a cohesive portfolio rather than individual recommendations—the strategy relies on asymmetric returns where exceptional performers balance out underperforming positions.
Cherry-picking only certain stocks fundamentally alters the risk-return profile of the strategy in ways that haven't been tested or validated by our models.
Even if you are particularly drawn to specific stocks, maintaining the designated portfolio weightings is crucial.
Should I Avoid Stocks That Are Already Up Significantly?
No, you should not avoid stocks that have already risen substantially within our portfolio.
Our model specifically selects stocks showing strong upward price momentum. Previous appreciation actually strengthens rather than weakens the case for continued ownership. For example, if a stock like HDFC Bank has already risen 25% since being added to our portfolio, this positive trend indicates that it is more likely to continue rising rather than reverse course.
If a stock remains in the portfolio after our rigorous review despite being up significantly, our quantitative analysis indicates it still has potential for further gains.
The strategy relies on exceptional performers balancing underperforming positions. Avoiding high performers disrupts this balance and fundamentally alters the entire investment approach.
What are the Capital Requirements? Should I invest Lumpsum or a SIP?
To subscribe to 1 unit of the Finvezto Quality Momentum Model Portfolio you might need somewhere between ₹50,000 to ₹75,000 capital.
If your capital is relatively small or if you want to try out the portfolio first, we recommend investing in 1 unit of the Portfolio. You can add more units as per your needs. Your choice should reflect your available capital, cash flow needs, risk tolerance, and investment timeline rather than trying to optimize the momentum strategy itself.
You can invest anytime in our portfolio as we optimize it for all market cycles. Do not try to time the portfolio. We are already doing it for you.
If your total capital is less than ₹50,000, please park it in Mutual Funds and please focus on increasing your capital through your job or other sources of income. You can use our Long Term Recommendations for the same.
Is there a minimum investment amount for the Finvezto Quality Momentum Portfolio?
The required minimum investment for our momentum portfolio isn't fixed and fluctuates based on current market prices of the constituent stocks. However you can expect to buy 1 unit of the portfolio between ₹50,000 to ₹75,000. The minimum investment amount will be displayed at all times in the Portfolio.
Is there a maximum investment limit for the Finvezto Quality Momentum Portfolio?
There is no specified maximum investment amount for our momentum portfolio, allowing flexibility based on your financial resources and investment goals.
While you can invest any amount, we recommend this momentum portfolio represent a maximum of 30% of your total investment portfolio alongside other asset classes for proper diversification.
We also recommend consulting with a financial advisor to determine the appropriate allocation to momentum strategies within your overall investment plan based on your specific circumstances.
How Will I Know When to Rebalance My Portfolio?
You will receive timely alerts via E-mail, WhatsApp, or in-app notifications (depending on your selected communication preferences) whenever our model portfolio changes.
Rebalance notifications are not automatically applied to your portfolio. You will need to manually execute the recommended trades in Smallcase/Brokerage account after receiving our signals.
While there's no strict deadline for implementing rebalances, prompt execution helps maintain alignment with the Finvezto Quality Momentum strategy and avoids performance deviation from our model portfolio.
If you miss rebalance notifications, you can always update to the latest portfolio composition, though this may result in different transaction prices than if executed promptly when first recommended.
What Other Costs involved in buying the Portfolio?
Beyond your portfolio subscription fees:
Brokerage costs (Mostly zero if you choose a discount broker such as Zerodha/Groww as all trades are delivery trades)
Account opening fee (If you do not have a DEMAT account yet)
Quarterly/Annual maintenance fee of DEMAT account
Smallcase fee - ₹100 for first portfolio
Securities Transaction Tax (STT) on both buy and sell transactions
Depository Participant (DP) charges
GST on brokerage and platform fees
Please note that there is no fees incurred for rebalancing the portfolio or adjusting the stock weights in smallcase.
What is the likely tax impact on returns?
Finvezto Quality Momentum Portfolio typically holds stocks for less than 1 year, but a few top-performers can be held for greater than 1 year. Therefore, Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG) will be applicable based on the scenario.
Short Term Capital Gains are currently taxed at 20%. Short term Capital Gains can also be offset against other Short Term Capital Losses.
Long Term Capital Gains is applicable on portfolio gains in excess of ₹1.25 Lakh and is currently taxed at 12.5%.
What are the other challenges in Momentum Investing Approach?
There are a few challenges faced by the Model that we will have to constantly handle.
Sudden Reversals - Market shifts can quickly erase gains when trends unexpectedly change direction or crowded positions unwind. A position might be up by 20% over several days and can be down 10% in a single day post that.
Transaction Costs - We would be making several entry and exits in a year as recommended by the model. High turnover generates commissions and spreads that significantly eat into returns over time. However, we try to minimize overall portfolio churn.
Psychological Hurdles - Buying expensive stocks at high prices and selling them at even higher prices is challenging. But we will do it if the valuation looks reasonable as per the model.
Crowded Trade Risk - Rising popularity of Momentum strategies diminishes effectiveness and creates liquidity traps during market chaos.
Timing Sensitivity - Small changes in entry/exit timing impact performance outcomes. If you miss taking an entry on a specific day and the stock is up 50% over the next month, it might impact outcomes significantly.
Join Our Quality Momentum Journey
I'm excited to guide you through the potential of Quality Momentum investing with our carefully constructed portfolio. I am committed to providing timely, research-driven recommendations to help you capture market trends. I look forward to partnering with you on this investment journey and delivering results that speak for themselves. We will be opening subscriptions by end of April 2025. Watch out this space!
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