Gulaq Market Cap Portfolios
Gulaq is the retail investment advisory arm of Estee Advisors, a company with almost two decades of experience in creating quantitative investment products for institutional and high-net-worth investors. With Gulaq, we focus on helping retail investors, mainly through the Smallcase platform. We offer them portfolios that are built using the same research but packaged to suit the needs of retail clients.
Our market cap portfolios—Gulaq Largecap, Gulaq Midcap, and Gulaq Smallcap—are all constructed using Estee’s sophisticated quantitative approach. This methodology enables us to create optimal portfolios that can consistently outperform benchmarks while maintaining low volatility. We use a multi-factor strategy, analyzing over 100 factors, including fundamental, technical, and macroeconomic indicators. All stocks are dynamically selected by the algorithm without the involvement of any human subjectivity.
Key Highlights:
- Concentrated Portfolio: Focused selection of 15 to 20 stocks.
- Sector Agnostic: Diversified portfolio with no sector-specific bias.
- Monthly Rebalancing: Ensures alignment with current market trends.
All three portfolios use the same portfolio construction process; the only difference lies in their investible universe:
- Large-cap stocks are the top 100 stocks by market capitalization.
- Mid-cap stocks range from 101 to 250 by market capitalization.
- Small-cap stocks range from 251 to 500 by market capitalization.
Backtested performance
Note:
1. Backtested returns: Jan 2012 to Oct 2024
2. Gulaq portfolios assumes 12bps transaction/slippage and DP charges at ₹1 lakh capital.
As expected, the returns for the small-cap portfolio are the highest at 38.2%, followed by mid-cap at 33.0%, and large-cap at 24.7%. When compared to their respective benchmarks, these translate to active returns of 17.5% for the small-cap portfolio, 10.2% for mid-cap, and 8.3% for large-cap.
Fama and French, in their 1990 study, highlighted the “size effect” in markets, where smaller companies tend to outperform larger ones. This phenomenon is evident here as well, with Gulaq’s Smallcap portfolio delivering the highest returns. Additionally, the broader investible universe of small-cap stocks—2.5 times larger than that of large-cap stocks—provides our quantitative models with more opportunities to identify high-performing investments.
That said, returns are only one side of the equation; understanding and managing risk is equally critical.
Note:
1. Backtested returns: Jan 2012 to Oct 2024
2. Returns assumes 12bps transaction/slippage and DP charges at ₹1 lakh capital.
3. Annualized risk: Annualized sample standard deviation over the same backtested period.
In the graph, risk (represented by annualized standard deviation) is plotted on the x-axis, while returns are plotted on the y-axis.
Among the assets, the Nifty Smallcap emerges as the riskiest; however, it surprisingly does not offer the highest returns. Its returns are only marginally higher than those of the Nifty Largecap. In contrast, the Gulaq Smallcap portfolio achieves significantly higher returns while maintaining a risk profile comparable to that of a mid-cap portfolio. This highlights its superior risk-adjusted performance, demonstrating its effectiveness in balancing risk and reward.
Note: As per backtested data: Jan 2012 to Oct 2024
The information ratio, a key metric for evaluating risk-adjusted returns, quantifies the active returns generated per unit of active risk. Among the portfolios, the Gulaq Smallcap portfolio leads with the highest information ratio of 1.32, reflecting its superior risk-adjusted performance. It is followed by the Gulaq Midcap portfolio at 0.69 and the Gulaq Largecap portfolio at 0.63, showcasing the effectiveness of each portfolio in balancing risk and returns within their respective market segments.
Note: As per backtested data: Jan 2012 to Oct 2024
Maximum drawdown quantifies the largest decline a portfolio experiences from its peak to its trough. For the Nifty indices, the most significant drawdowns occurred in May 2020, driven by COVID-induced market panic. However, the data reveals that the Gulaq Market Cap Portfolios, despite their focused selection of just 15 to 20 stocks, demonstrated significantly lower maximum drawdowns.
Performances During Bear Market Phases
We analyzed periods during which the benchmark Nifty index remained flat, showing zero growth for extended durations, and evaluated the performance of Gulaq portfolios during these challenging times:
Gulaq Smallcap
| Period | Duration | Nifty Smallcap Index Returns | Gulaq Small Cap Returns |
|---|---|---|---|
|
Dec 2012 - Feb 2014 |
15 months |
0% |
9.6% |
|
Dec 2017 - Mar 2021 |
40 months |
0% |
135% |
|
Dec 2021 - Apr 2023 |
24 months |
0% |
20.2% |
Gulaq Midcap
| Period | Duration | Nifty Smallcap Index Returns | Gulaq Small Cap Returns |
|---|---|---|---|
|
Dec 2012 - Feb 2014 |
15 months |
0% |
52.4% |
|
Dec 2017 - Mar 2021 |
11 months |
0% |
-7.2% |
|
Dec 2021 - Apr 2023 |
35 months |
0% |
26.0% |
Gulaq Largecap
| Period | Duration | Nifty Smallcap Index Returns | Gulaq Small Cap Returns |
|---|---|---|---|
|
Dec 2012 - Feb 2014 |
17 months |
0% |
9.5% |
|
Dec 2017 - Mar 2021 |
11 months |
0% |
10.7% |
|
Dec 2021 - Apr 2023 |
10 months |
0% |
12.1% |
Even during periods where the index generated no returns, Gulaq Market Cap Portfolios demonstrated remarkable consistency. A notable example being the brutal 40-month bear market from December 2017 to March 2021, during which the Gulaq Smallcap portfolio delivered an impressive 135% return, starkly outperforming the Nifty Smallcap’s 0% return.
| Period | Duration | Nifty Smallcap Index Returns | Gulaq Small Cap Returns |
|---|---|---|---|
|
Dec 2012 - Feb 2014 |
15 months |
0% |
9.6% |
|
Dec 2017 - Mar 2021 |
40 months |
0% |
135% |
|
Dec 2021 - Apr 2023 |
24 months |
0% |
20.2% |
Bottom Line
Gulaq Market Cap Portfolios are an addition to our existing suite of gear-based portfolios. They provide investors with enhanced flexibility to tailor their target exposure according to individual preferences and investment goals.
You can download the backtested data and illustrations used in this blog by clicking the link below.
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