Nippon India Nifty 500 Momentum 50 Index Fund Explained | Interview with Arun Sundaresan
Summary
TLDRIn this discussion, Arun Sundas from Nippon India Mutual Fund and Sneha Suri from Value Research delve into the Nifty 500 Momentum 50 Index Fund, a new investment strategy focusing on stocks with strong upward price trends. Unlike traditional value investing, momentum investing involves buying high-performing stocks with the expectation of further increases. The fund, which selects 50 stocks from the Nifty 500 universe, is rebalanced semi-annually to adapt to market changes. It offers diversification across market caps and sectors, making it a potentially strong addition to equity investors' portfolios seeking aggressive risk-return profiles.
Takeaways
- 😀 The Nifty 500 Momentum 50 Index Fund by Nepon India is a momentum-based investment strategy that focuses on identifying and investing in the 50 top-performing stocks from the broader Nifty 500 universe.
- 📈 Momentum investing is a strategy that involves buying stocks that have been performing well in the hope that they will continue to rise, contrasting with traditional 'buy low, sell high' approaches.
- 🏦 The fund is differentiated from other similar strategies by investing across the entire Nifty 500, covering large, mid, and small-cap stocks, rather than focusing on a specific segment of the market.
- 🔍 The selection process for the fund involves a momentum ratio calculation based on the past 6 months and 1 year price returns, adjusted for volatility, to identify the top 50 stocks.
- 🔄 The index is rebalanced twice a year, in June and December, to ensure the portfolio reflects the current market momentum and to manage risks associated with rapid changes in stock performance.
- 📊 The fund's risk-return profile is strong, with back-tested data showing an average three-year rolling return close to 20%, outperforming the broader Nifty 500 index.
- 🌐 The strategy has shown resilience in various market conditions, including bear markets, although it's important to note past performance is not indicative of future results.
- 💡 The fund is suitable for equity investors seeking an aggressive risk-return profile and is considered an 'all-weather' proposition due to its diversified nature and consistent performance.
- 💼 Investors are advised to consider such strategies as a supplementary allocation, possibly 5-10% of their portfolio, to balance risk and potential returns.
- 📉 While the strategy has shown potential for sustained returns, it's also subject to higher volatility, and investors should be aware of the risks, especially in extreme market conditions like 2008-2009.
Q & A
What is the Nifty 500 Momentum 50 Index Fund and how does it differ from traditional investing?
-The Nifty 500 Momentum 50 Index Fund is an index fund that focuses on replicating the performance of the Nifty 500 index, but with a momentum-based strategy. Unlike traditional investing which involves buying low in hopes of selling high, momentum investing identifies stocks that are already performing well and are likely to continue doing so, buying high with the expectation of selling even higher.
How is the Nifty 500 Momentum 50 Index Fund different from other momentum-based funds?
-The Nifty 500 Momentum 50 Index Fund is unique in that it invests across the entire Nifty 500 index, covering large, mid, and small-cap stocks. This is different from other momentum funds that may focus on specific segments like Nifty 200 or midcap 150. It applies the momentum factor across the entire market, selecting 50 stocks based on their momentum.
What is the selection process for the top 50 stocks in the Nifty 500 Momentum 50 Index Fund?
-The selection process for the top 50 stocks is based on price momentum, considering the last 6 months and one year price returns. The price is adjusted for volatility, and a momentum ratio is calculated. Stocks are then picked based on this ratio, with further refinements to ensure investability, such as excluding stocks with low volume or high promoter pledges.
How often is the Nifty 500 Momentum 50 Index Fund rebalanced and what impact does this have on the portfolio?
-The index is rebalanced twice a year, in June and December. This rebalancing ensures that the portfolio quickly adapts to changing market conditions and momentum, leading to significant changes in the portfolio composition to reflect the current momentum in the market.
What is the historical performance of the Nifty 500 Momentum 50 Index Fund strategy?
-According to the back-tested data, the strategy has shown a strong risk-return profile over 19 years. It has outperformed the Nifty 500 in 83% of the time over three-year rolling returns and almost 100% of the time over five-year rolling returns. The average three-year rolling return for the index is close to 20%, compared to 12.5% for Nifty 50 and Nifty 500.
How does the fund manage the risks associated with rapid changes in momentum?
-The fund manages risks through its rebalancing frequency, which is every six months. This allows the fund to quickly react to changes in momentum, ensuring the portfolio reflects the current market trends. The dynamic nature of the strategy has shown to work well in different market conditions.
Who is the Nifty 500 Momentum 50 Index Fund best suited for?
-The fund is best suited for equity investors seeking an aggressive risk-return profile and looking for a strategy that can potentially generate higher and consistent returns over the long term. It is a diversified strategy, investing across the entire market and is considered an all-weather proposition.
How should investors consider using the Nifty 500 Momentum 50 Index Fund as part of their broader investment strategy?
-Investors can consider the Nifty 500 Momentum 50 Index Fund as a supplementary allocation, perhaps 5 to 10% of their portfolio, to benefit from the momentum strategy without significantly increasing their overall risk. It can be particularly appealing for those open to higher risks and looking for potentially higher returns.
What are the potential drawbacks of investing in the Nifty 500 Momentum 50 Index Fund?
-While the strategy has shown strong historical performance, it is subject to higher volatility and can underperform in certain market conditions, such as during extreme market corrections. Investors should be aware of these risks and consider them when deciding to invest in a momentum-based fund.
How does the Nifty 500 Momentum 50 Index Fund's performance compare to other factor-based strategies?
-The Nifty 500 Momentum 50 Index Fund has shown to outperform other factor-based strategies over the long term, with a higher average three-year rolling return compared to value-based, quality-based, and even midcap and small-cap strategies. However, it's important to note that past performance is not indicative of future results.
Outlines
📈 Introduction to Nifty 500 Momentum 50 Index Fund
The discussion begins with an introduction to the Nifty 500 Momentum 50 Index Fund by Nipon India Mutual Fund. Arun Sundas, Head of ETF at Nipon India, explains the concept of momentum investing, which involves buying stocks that are already performing well with the expectation that they will continue to do so. This strategy is different from traditional investing, which focuses on buying low and selling high. The fund aims to replicate the Nifty 500 index, applying the momentum factor to select 50 stocks from the entire market. The conversation highlights the fund's uniqueness compared to other momentum-based funds, as it invests across the entire spectrum of the market, including large, mid, and small-cap stocks.
🔍 Selection Process and Rebalancing of the Index
Arun Sundas elaborates on the selection process for the top 50 stocks from the Nifty 500 universe, focusing on price momentum over the past six months and one year, adjusted for volatility. The stocks are chosen based on their momentum ratio, which is the price divided by the standard deviation. The fund also employs a tilt-weighted methodology based on free float market cap, ensuring a diversified portfolio. The index is rebalanced twice a year, in June and December, to reflect changes in momentum and maintain a dynamic portfolio. The discussion also touches on the fund's historical performance, showing a strong risk-return profile over different market conditions.
📊 Performance Analysis and Suitability for Investors
The conversation delves into the performance of the Nifty 500 Momentum 50 Index Fund over the past 19 years, highlighting its ability to outperform the broader market in various market conditions. The fund has shown an average three-year rolling return close to 20%, outperforming Nifty 50, Nifty 500, mid-cap, and small-cap indices. It has also demonstrated resilience in bear markets, performing in line or better during difficult years. Arun suggests that the fund is suitable for a wide range of equity investors seeking a diversified, aggressive strategy with the potential for higher returns. The fund's diversification and rebalancing strategy make it an all-weather proposition.
🤔 Investor Considerations and Strategy Adoption
Snas Suri, a fund analyst, advises investors to consider momentum-based strategies like the Nifty 500 Momentum 50 Index Fund as a supplementary allocation, possibly 5-10% of their portfolio. While the historical back-tested data is promising, investors should be aware of the strategy's higher volatility and the potential for underperformance during extreme market corrections. The discussion concludes with a recommendation for investors to carefully evaluate their risk tolerance and investment goals before adopting such strategies, suggesting that momentum investing could be a valuable addition to a well-diversified portfolio.
Mindmap
Keywords
💡Momentum Investing
💡Nifty 500
💡Index Fund
💡Risk-Return Profile
💡Rebalancing
💡Momentum Ratio
💡Free Float Market Cap
💡Diversification
💡Back-Tested Data
💡All-Weather Proposition
Highlights
Introduction to the Nifty 500 Momentum 50 Index Fund and its approach to investing.
Explanation of momentum investing and its contrast to traditional buy-low-sell-high strategy.
How the Nifty 500 Momentum 50 Index Fund selects its portfolio of stocks.
Distinction of the Nifty 500 Momentum 50 Index Fund from other momentum-based funds.
Analyst's perspective on the Momentum 50 Index and its comparison to other strategies.
Details on the selection process for the top 50 stocks from the Nifty 500 universe.
Frequency of index rebalancing and its impact on the portfolio.
Discussion on the fund's risk management in the face of rapid changes in momentum.
Long-term performance of momentum investing in Indian markets.
Suitability of the fund for different types of investors and its role in a broader investment strategy.
Historical performance data and its implications for future investment decisions.
How the fund's diversification across market caps and sectors can benefit investors.
The fund's potential as an all-weather investment strategy.
Advice for investors considering momentum funds as part of their portfolio.
The importance of considering real-time market conditions when investing in momentum funds.
Final thoughts and conclusions from the discussion on the Nifty 500 Momentum 50 Index Fund.
Transcripts
[Music]
hello and welcome to today's discussion
on the newly launched nepon India Nifty
500 momentum 50 Index Fund to break it
down in detail I'm pleased to have with
me Arun sundas head of ETF at nipon
India mutual fund and snas Suri lead
fund Analyst at Value research welcome
both of you hi rir happy to be on the
show thank you uh Arun let me to you
first could you start by giving us an
overview of what the Nifty 500 momentum
50 Index Fund is all about and how is
this different from other momentum based
funds out there so traditional investing
generally is about uh buying stocks or
any any investment at a lower price so
you buy low with the hope that it'll
appreciate and you'll be able to sell
high so that's the traditional approach
uh contrary to this against this
approach roach uh the momentum uh style
of investing is very different you try
and identify stocks which are already
doing well probably they're already you
know pricey or they are high with the
hope that it will go even higher so you
buy high and sell even higher that's a
concept of momentum it may be
counterintuitive but as I'll explain uh
it had worked at many circumstances and
generated phenomenal uh returns over a
period of time so the U uh npon India
Nifty 500 momentum 50 Index Fund uh the
name suggest is an index format where
we'll be replicating this particular
index so the universe is Nifty 500 so on
the entire Market the momentum Factor
will be applied and 50 stocks will be uh
picked up based on that so that's the
concept of this particular fund and if
you could also explain how is it uh you
know any different from the uh similar
momentum base funds that are already out
there sure so uh this is not entirely
first of its kind there is another
strategy which is currently on as well
uh but as of now there are a few
strategies in the market which is on uh
the 200 uh Nifty 200 uh so that's one
strategy there there are also a couple
of strategies on uh the midcap 150 so
both of them focus on a particular part
of the market whereas this will invest
across the entire uh 500 Nifty 500 which
means that across large mid and small
cap regardless of you know which parts
of the market you apply the momentum and
uh wherever momentum is working it gets
picked up so that's how this is
different from the existing uh momentum
strategies right snea from your
perspective how does the momentum 50
index St stack up against other
strategies uh also what makes it stand
out from an analyst point of view if you
could explain that sure so so uh broadly
as Aon mentioned this index uh pick
stocks which have been appreciating
sharply over a short period that is are
experiencing that momentum a strong
price trend so this strategy benefits
from the strong get stronger principle
where you know stocks with upward price
trends tend to continue performing well
in the near term this is due to that
focus on price trends uh you know rather
than the conventional driven uh stock
picking like Arun mentioned of course
some checks and balances are buil WR
into the process of these strategies
since they pick stocks from their bigger
parent indices the Nifty 500 being the
one for this particular fund talking
about other factor-based strategy
indices that we have they also select
stocks from a particular index based on
different rules so we have value based
funds quality based funds Etc so
different funds use these factors
differently some of them use them in
isolation that is you know basing One
Fund uh basing a fund on one factor or
let's say in combination to create a
unique basket of stocks so notably each
factor has its moment in the spotlight
and dominance mostly rotates over time
while momentum can deliver dramatic
returns it's also subject to a higher
volatility in the short term and that
can be seen in its back tested data of
you know minimum one year Rolling
returns which stands at a negative
60% and of course like uh Arun mentioned
currently there are no established fund
struct in the Nifty 500 momentum 50
index with only two funds in their nfo
period including the one from nepon
India that we are discussing but uh you
know based on the funds tracking the
Nifty 200 moment momentum 30 index it is
fair to say that so far the returns have
been appealing but the strategy is
actually yet to see uh any major bearish
phases since these funds have only been
around since uh 2021 but the funds have
so far been tracking the index uh
relatively
well right uh Aron if you could explain
what is the selection process like how
do you go about selecting top 50 stocks
from the broader uh Nifty 500 universe
so the um uh the definition of momentum
is actually price momentum so the last 6
months and one year price returns are
considered but not just only the price
the price is adjusted for volatility uh
the price is divided by the standard
deviation so to say and uh this uh
number is called as momentum ratio so
that's primarily used for picking up
stocks of course there are like what s
mentioned there are finer details uh we
we eliminate a few stocks based on
certain parameters like you know if it
is low on uh volume and you know the
promoter pledges on the highest side Etc
to ensure that uh the universe and
eventually the number of stocks we
select are investable so that's broadly
the uh method um by the end of the day
what it does is it purely goes by the
past return it does not look into
factors like quality factors like what
has been the return on earnings or even
valuation metrics like what is the p pb
Etc it goes simply by what has done well
having said that while this may give an
impression that this goes only by price
and therefore you know uh it may pick up
fundamentally weak companies but the uh
end result because U you know your
picking up something which is doing well
and those stocks could actually be doing
well for fundamentally strong reasons so
uh you you can't say that you know the
momentum strategy does not pick up
fundamentally good companies it can uh
so happen that you know the portfolio
could be relatively
strong right and how how often is the
index rebalanced and also if you could
walk us through how that rebalancing
affects the overall portfolio sure so
the index is rebalanced twice once in
June and ones in December I did mention
to you about the methodology where to
start with the momentum scores are
considered that's how the 50 stocks are
picked up uh but once it's picked up the
waiting is actually done basis the free
float market cap so we call this tilt
waiting methodology um uh in simple
words to say that suppose a big stock
has a certain momentum and a small cap
stock also has equal momentum the
biggest stock will get
higher weight because you know it is
having a higher free flow so you will
have to see this in relation to where
the market is Nifty 500 and in relation
to it the different parts of the market
you know where you have higher momentum
that's what gets uh picked up uh so
we've seen um uh data while while SN
mentioned that some of the existing
strategies are available only from 21
the index itself the data is available
way back from 2005 so we have almost 19
years of data and we've seen how the
index the strategy based on back tested
results how this is done over different
points in time and different parts of
the I mean different uh uh Market times
and you know the average Returns the
volatility and so on and so forth uh
this seems to be having a relatively
strong uh risk return
profile okay you mentioned that it has a
it seems to have a very strong uh risk
return profile but markets are cyclical
and momentum can shift quickly so how
does the fund prepare for or manage the
risks of rapid changes in
momentum the one is uh this rebalancing
frequency itself you know the six months
and um I mean every six Monon
rebalancing uh right and you also asked
this question how it impact the
portfolio in fact it seems to have
impacted positively in the sense that
because there is a frequent change uh
very quick to react in ter terms of you
know what is working and you know the
portfolio under goes significant change
to reflect you know the uh changing
momentum so uh that that's that's a
positive uh thing you know doesn't stick
on uh to the same portfolio for very
long what works regardless of market cap
regardless of you know the sectors and
themes that the various stocks could be
operating and it uh you know picks up so
it's been fairly U Dynamic and it seemed
to have worked in different market
conditions here
all right and do you think momentum
investing will hold up as a strong
strategy in the Indian markets over the
long term or are there any are there
certain market conditions where it works
best so generally when you think about
momentum you tend to think that these
are bull market products and you know it
may work only when markets are having
the momentum so to say uh but um the
data actually suggest um a completely
different thing I did mention that 19
years of data is available so we looked
at not just the current Returns the last
one year or three year or five year
return so if you looked at the average
rolling return see for example the
threeyear average return at any point in
time you invested in the last 19 years
and you looked at the threeyear return
and what has been the average threeyear
return that's that's what you know we
mean by the average three-year rolling
return that number for this index is
close to 20% so just to give you a
perspective the equivalent number for
nifty 50 and Nifty 500 is 12 .5% so and
these are all cagr okay so what we
saying is there is almost a 7 and a
half% difference when compared to Nifty
500 even when compared to midcap and
small cap which are generally considered
to be more aggressive strategies uh so
mid cap is given close to about 15% for
the three-year average return small cap
is given close to 13 and a half 14% so
we talking about whether it is the Nifty
5500 midcap small cap the strategy 1 has
done phenomenally well so in this case
we talking about threeyear uh rolling
return similar is know the 5year story
as well this is point number one and uh
the second interesting um fact is more
than 80% of the time in fact to be
precise 83% of the times this is
outperformed Nifty 500 so that's a a big
number uh I'm sure you will appreciate
that over the last 19 years markets have
gone through various faes and for a
strategy to outperform uh the broader
markets in 80 83% in fact over 5ye
rolling return uh this number goes close
to 100% so while it might be perceived
that you know it might work in certain
market conditions the data seem to
suggest obviously these are past data
but the data seems to suggest that the
strategy has the potential to generate
far more sustained returns uh and you
know we noticed even in uh difficult
times like for example
20111 uh the markets fell by almost 26%
this actually fell lesser which means
that actually perform better than the
market likewise in 2013 2019 2020 all
these were difficult years for the
market the strategy actually either
performed in line or slightly better as
well so uh we may not be able to say
that this may not work in bare markets
by in large this seem to have worked but
having said that there will always be
faces for example we noticed in 2008 and
9 which were obviously on hindsight
extreme periods where markets corrected
very very sharply and then recovered
also very sharply during that period
this particular strategy underperformed
because momentum could work on a lag
that um something which fell very
sharply the allocations could be based
on that then some other part of the
market recovers faster so this may lag
so those kind of things can happen but
by and large this seem to have done very
well uh over a longer period of time and
fairly consistently all right sir and
who would you say this fund is best
suited
for uh so while this is a smart beat up
product uh it's a strategy product you
know it's based on momentum style but
the underlying is fairly Diversified so
we going to invest in the entire Market
500 so we're talking about large M small
cap wherever momentum is it's going to
pick up and there are going to be 50
stocks it's not you know very uh like
you know 10 Stock 15 stock it's 50 stock
and there is a capping applied to each
stock you know no single stock can be
more than 5% at the time of rebalancing
uh so you have Fair bit of
diversification from that as well uh
while it does not start with sector it
know it's bottom up you know from a
stock picking perspective but you will
have exposure to multiple sectors
currently it has exposure to 13 sectors
so from all that sense you know it's
highly Diversified and I explained to
you based based on you know the past
track record in terms of how it worked
in different market conditions it gives
an impression that this could be
considered as an all weather proposition
it can suit a whole lot of uh Equity
investors you know where they're looking
for a uh good strategy which can work
for them in the longer term generate
potentially higher returns and also has
the possibility of generating that uh
reasonably consistently I think you know
this is once a strategy so this may be
suitable for a good number of uh Equity
investors who seek you know aggressive
risk return
profile right SN what's your take how
should investors think about using this
fund as part of their broader investment
strategy right so uh like uh Arun
mentioned that you know such stocks will
do well in a runaway bull markets uh and
the back tested data shows that they
have done reasonably well in the bearish
phases as well but uh invest should look
to consider these strategies when
they've you know these kind of stocks
have seen bad times in real time basis
uh investors can treat such strategies
as part of their supplementary
allocation say about 5 to 10% of their
portfolio that really won't keep them up
at night so the you know fun allocation
as we uh say because U again mentioning
the fact that much of its historical
data is back calculated so given the
kind of untested nature over a Market
cycle conservative investors may choose
to avoid momentum funds but those open
to you know higher risks can embrace the
ride well that wraps up our discussion
thank you Arin and thank you SN for
sharing valuable insights it's been a
great conversation thanks thank you rir
[Music]
تصفح المزيد من مقاطع الفيديو ذات الصلة
5 Hidden Mutual Funds to Build MASSIVE Wealth | Udayan Adhye
Indian Defence Sector - Long Term Growth Story ? I Defence Funds I Best Mutual Fund to Buy in 2024
MASSIVE (70-100%) Returns By 3 INDEX Funds - DON'T Miss this video | Rahul Jain Analysis #profit
Should We All Just Buy The S&P 500?
A Primer on Groww Nifty Non-Cyclical Consumer Index Fund
Attn: Index Fund Investors ⚠️ Nifty Total Market Index is a SUPERIOR ALTERNATIVE to the Nifty 50
5.0 / 5 (0 votes)