5 Hidden Mutual Funds to Build MASSIVE Wealth | Udayan Adhye
Summary
TLDRIn this video, the host introduces factor investing, a powerful yet relatively unknown strategy in India, as the second most popular method globally. The host explains five key factor categories: momentum investing, exemplified by the Nifty 200 Momentum 30 Index, which focuses on stock price trends; midcap momentum with the Nifty Midcap 150 Momentum 50 Index; the Nifty Alpha 50, selecting high-performing stocks; the Nifty Top 10 Equal Weight Index, balancing the largest stocks; and the Nifty 500 Value 50 Index, emphasizing company fundamentals. The video compares these strategies' historical performance to traditional indices like the Nifty 50, highlighting their potential to significantly enhance portfolio returns.
Takeaways
- đ Factor investing is the second most popular investment strategy globally, yet it's relatively unknown in India.
- đ Momentum investing focuses on stocks that have been increasing in price, expecting the upward trend to continue.
- đč The Nifty 200 Momentum 30 Index, composed of high-momentum stocks from India's largest 200 stocks, has shown significant returns.
- đ The past one-year returns of the Nifty 200 Momentum 30 Index have been over 60%, outperforming the Nifty 50.
- đ The 5-year median rolling returns of the Nifty 200 Momentum 30 Index are notably higher than those of the Nifty 50.
- đ The Nifty Midcap 150 Momentum 50 Index selects high-momentum stocks from midcaps, showing impressive one-year returns of 70.75%.
- đ The Nifty Alpha 50 Index selects stocks based on their outperformance (Alpha) against the index, with a one-year return of 77.95%.
- đą The Nifty Top 10 Equal Weight Index provides equal weight to the 10 largest stocks in the Nifty 50, offering stability with returns of 20.32% in the past year.
- đ° The Nifty 500 Value 50 Index follows a value investing approach, selecting undervalued stocks with strong fundamentals, and has delivered a one-year return of 86.2%.
- đ During market downturns, like the COVID crash, momentum and value indices have shown resilience, outperforming broader market indices.
Q & A
What is factor investing and why is it significant?
-Factor investing is a strategy that focuses on specific investment factors that are believed to influence the returns of a portfolio. It's significant because it can potentially boost the returns of your portfolio and is the second most popular method of investing worldwide, just behind index funds.
What are the five categories of factor investing mentioned in the script?
-The five categories of factor investing mentioned are: 1) Momentum investing, 2) Midcap momentum investing, 3) Alpha investing, 4) Top 10 equal weight investing, and 5) Value investing.
How does the Nifty 200 Momentum 30 Index select its stocks?
-The Nifty 200 Momentum 30 Index selects its stocks from the largest 200 stocks in India based on their momentum. The 30 stocks with the strongest momentum are chosen using a normalized momentum score, which considers the stocks' 6-month and 12-month price returns adjusted for volatility.
What is the difference between the Nifty 200 Momentum 30 Index and the Nifty 50 Index in terms of returns?
-The Nifty 200 Momentum 30 Index has historically provided higher returns than the Nifty 50 Index. For instance, a SIP investment in the momentum index would have grown more significantly compared to the same investment in the Nifty 50 Index.
How does the Nifty Midcap 150 Momentum 50 Index differ from the regular Nifty Midcap 150 Index?
-The Nifty Midcap 150 Momentum 50 Index focuses on selecting the 50 stocks with the highest momentum from a pool of 150 midcap stocks, whereas the regular Nifty Midcap 150 Index comprises the 150 largest midcap stocks. The momentum index has shown to outperform the regular midcap index in terms of returns.
What is unique about the Nifty Alpha 50 Index's stock selection process?
-The Nifty Alpha 50 Index selects 50 stocks from the 300 largest stocks in India based on their alpha, which is the difference between a stock's performance and its comparable index. Stocks with the highest alpha are given the largest weightage in the index.
Why might an investor consider the Nifty Top 10 Equal Weight Index?
-An investor might consider the Nifty Top 10 Equal Weight Index because it assigns an equal allocation to each of the 10 largest stocks within the Nifty 50 index, which can potentially offer higher returns with lower volatility compared to the Nifty 50 Index itself.
How does the Nifty 500 Value 50 Index select its stocks and what is its performance compared to the Nifty 500 Index?
-The Nifty 500 Value 50 Index selects its 50 stocks from a universe of 500 stocks based on a value score that considers earnings to price ratio, book value to price ratio, sales to price ratio, and dividend yield. Its performance has been higher than the Nifty 500 Index on a 5-year rolling basis, but it comes with a higher standard deviation, indicating greater volatility.
What are the risks associated with the Nifty Alpha 50 Index?
-The Nifty Alpha 50 Index comes with higher risks due to its higher volatility. Since the stocks are selected based on their performance relative to the index, the index can be more susceptible to market fluctuations.
Why might an investor prefer actively managed funds over index funds for value investing in India?
-An investor might prefer actively managed funds over index funds for value investing because active funds can potentially provide better returns by taking advantage of market inefficiencies and the fund manager's expertise, which can be particularly beneficial in a market like India where value investing can be more complex.
Outlines
đč Introduction to Factor Investing
The script introduces factor investing as the second most popular investment strategy globally, just behind index funds. It is a method that can significantly enhance portfolio returns but remains relatively unknown in India. The speaker, UD, a licensed financial expert in India since 2015, shares insights into factor investing, focusing on five categories. The first category discussed is momentum investing, which emphasizes stock price trends rather than company fundamentals. The Nifty 200 Momentum 30 Index, composed of 30 high-momentum stocks from the largest 200 in India, is highlighted for its impressive returns, outperforming the Nifty 50 Index. The script explains the concept of momentum investing and how the index is constructed, mentioning five index funds that track this index, with a focus on those with the lowest expense ratios.
đ Momentum Investing in Midcap Stocks
The script delves into the second type of factor investing, focusing on midcap stocks with the Nifty Midcap 150 Momentum 50 Index. This index selects 50 high-momentum stocks from a pool of 150 midcap stocks and has shown remarkable returns over the past year. The script compares the performance of this index with the regular midcap 150 index, demonstrating the momentum index's superior returns and consistency. The speaker recommends balancing a midcap momentum fund with a regular midcap fund to diversify investments in this space. The HDFC and Kotak midcap funds are compared for overlap with the momentum index, showing low overlap percentages. Edelweiss and Tata index funds are suggested for investment in this category, given their similar expense ratios.
đ The Power of Alpha in Nifty Alpha 50
The third paragraph discusses the Nifty Alpha 50 Index, which has shown significant returns over the past year. This index is unique as it selects 50 stocks from the 300 largest in India based on their alpha, or outperformance against the index. The script explains the concept of alpha using the example of State Bank of India outperforming the Nifty 50. The performance of the Alpha 50 index is compared with the Nifty 50, showing that the Alpha 50 generally outperforms, especially during market recoveries. The script also touches on the higher volatility of the Alpha 50 index and mentions that Kotak and Bandhan offer funds tracking this index, with similar expense ratios.
Mindmap
Keywords
đĄFactor Investing
đĄMomentum Investing
đĄNormalized Momentum Score
đĄIndex Funds
đĄAlpha
đĄMidcap Stocks
đĄValue Investing
đĄEqual Weight Index
đĄVolatility
đĄExpense Ratio
đĄStandard Deviation
Highlights
Factor investing is the second most popular investment method globally, yet relatively unknown in India.
Momentum style investing focuses solely on a stock's price movement, not other financial metrics.
Nifty 200 Momentum 30 index has shown a 5-year median rolling return of 18.9%, outperforming Nifty 50.
Investing in the Momentum index could have doubled the investment in 12 months compared to Nifty 50.
Momentum investing is based on the idea that rising stocks are likely to continue rising, and falling stocks to continue falling.
Nifty 200 Momentum 30 index is composed of 30 stocks with the strongest momentum from the largest 200 stocks in India.
Five index funds track the Momentum index, with UTI, Motilal Oswal, ICSA, and HDFC offering them.
Nifty Midcap 150 Momentum 50 index focuses on midcap stocks with high momentum, returning 70.75% in the past year.
Momentum Midcap index has delivered over 20% annual returns 65.9% of the time over any 5-year period.
Nifty Alpha 50 index selects 50 stocks from the 300 largest in India based on their alpha generation.
Alpha in investing refers to the outperformance of a stock compared to its comparable index.
Nifty Top 10 Equal Weight index assigns equal weight to the 10 largest stocks in the Nifty 50 index, rebalanced every 6 months.
Nifty 500 Value 50 index follows value investing, selecting stocks based on fundamentals like earnings to price ratio.
Value investing is traditionally considered safer and performs well when the stock market is down.
Investing in factor-based index funds can offer higher returns than traditional indices like Nifty 50.
The video provides a detailed comparison of factor-based indices versus traditional indices like Nifty 50 and Nifty Midcap 150.
Transcripts
what if I told you there's an investing
strategy so powerful that it is the
second most popular method of investing
across the world just behind index funds
and it can significantly boost the
returns of your portfolio and yet here
in India it is still relatively unknown
and new this is called Factor investing
and today I'm going to share with you
five categories within the world of
factor investing and show you how they
can revolutionize your Investments
allocating a part of your portfol to
them could be a wonderful idea hello
everyone I'm UD I've been licensed in
the Indian Financial Services space
since 2015 first in insurance and then
in mutual funds and so far I have helped
over 1,000 families make better
financial decisions and here on my
YouTube channel I talk about all things
money and personal development the first
type of factor follows something called
as the momentum style of investing now
check this out the index that tracks it
has returned over 60% % in the past one
year that means if you had invested 1
lakh rupes exactly one year ago it would
have today become 1.6 lakhs in just 12
months but here's what really caught my
eye an sip in this momentum index has
generated 5year median rolling returns
of
18.9% while the nifty50 which is India's
top 50 stocks has grown at
12.8% now that is a big difference right
in sip terms if you think about it a
10,000 per month sip investment in in
the momentum index would have grown to
about 10 lakhs while the same sip in the
nifty 50 index would have grown to 8.43
lakhs the index is the Nifty 200
momentum 30 index and to really get to
know how it works you need to understand
the momentum style of investing here's
how it works in momentum investing
you're not at all focused on a company's
profit Revenue margins its p ratio or
anything else like that what's the only
thing literally the only thing that
matters the price of its stock or as the
famous Gujarati phrase goes B Bagan or
that price is God momentum investing is
all about this one simple idea a stock
that has been going up for a while is
likely to keep going up a little longer
and the same goes for a stock that has
been going down it's probably going to
keep sliding down that's momentum
investing in a nutshell and the Nifty
200 momentum 30 index is made up of 30
stocks selected from the largest 200
stocks in India which includes large
midcaps now these 30 stocks that are
selected are the ones with the strongest
momentum in this universe of 200 stocks
now momentum is calculated through a
very scientific process called as the
normalized momentum score which looks at
the stocks 6 Monon and 12- month price
returns adjusted for volatility there
are five index funds that track this
particular momentum index they're
offered by UTI motil oswal icsa
credential bundan and HDFC now usually
you would select an index fund that has
the lowest total expense rati and
tracking error now all these index funds
are relatively new so I would not really
even consider tracking error at the
moment which is the difference between
the returns of the index and the index
fund having said that mtila and IC
credentials index funds in this
particular space stand out because they
have the lowest expense ratios but UTI
having said that has the oldest and
largest Fund in this space its expense
ratio is higher by
0.16% which honestly is not that big a
deal just to put this in perspective Ive
a 10,000 per month sip for 10 years that
grows at 15.16 annually would grow to
2814 lakhs but if the growth rate was
15% that is only 0.16% lower it would
have grown to 27.8 6 lakhs which is
about 40,000 rupees lower now let's
compare the Nifty 200 momentum 30 index
and the nifty 50 now this is how an sip
in both would have grown as you can see
the darker line is the momentum index
whereas the lighter line is the nifty50
index
and if you notice the momentum index has
always given higher returns than the
nifty50 index just to put that in
perspective let's say where my mouse is
hovering right now that calculates
returns for an sip from 1st January 2013
to 1st January
2018 and during that period if you look
at it the nifty50 had annualized returns
of
13.9% whereas the momentum index was
28.6% so more than double of the nifty50
index and even during the covid crash
even at the lowest point on 1st April
2020 you see that the momentum index
actually gave positive 3% returns
whereas nifty50 was minus
4.42% and when the markets have been
doing well the momentum index has been
Head and Shoulders above the nifty-50
index the second type of factor is
another momentum index but this one
focuses solely on midcap stocks it is
called the Nifty midcap 150 momentum 50
index and I'll tell you how it gets its
name so it El 50 stocks with the highest
momentum from a pool of 150 midcap
stocks this particular index has
returned 70. 75% in the past one year
how does it stack up against the normal
midcap 150 index since April 2005 an sip
in the Nifty midcap 150 index has had a
median 5year rolling return of
18.9% which means a 10,000 per month sip
in it would have grown to about 10 lakhs
in 5 years on the other hand the
momentum midcap index has returned to
24.1% and the same sip would have grown
to
11.66 lakhs at the same time when it
comes to explosive wonderful performance
the momentum index is the clear winner
for an sip it has delivered over 20%
annual returns over any 5year period
65.9% of the time which is insanely
consistent the midcap index has crossed
20% annual returns 41.6% of the time so
what is my preferred way to invest in
this particular space I personally like
to balance a midcap momentum fund along
with a regular midcap fund now when
you're investing in two funds in the
same space you have to look at overlap
so if you look at the two largest
players in this particular space which
is the HDFC midcap fund and the kotak
midcap fund and if we compare that
against the momentum midcap uh Index
Fund then we'll see how that plays out
so I'm going to enter the HDFC fund it's
called the midcap opportunities fund and
let's see how much the overlap is only
18% so we are clear there and if we look
at say the kotak emerging equities fund
which is the kotak midcap fund the
overlap is again 23% which is again
supremely low now Ed and Tata have index
funds that track this particular
category of midcap momentum index funds
and since their expense ratios are
pretty similar you can essentially go
with either one if you're looking to
invest in this space now let's compare
the midcap momentum index against the
regular midcap index momentum index at
literally every point in time except for
a short period at the start in early
2000s very very short period of time
except for that it has always always
outperformed the midcap 150 index even
during the covid crash if you notice the
performance of the momentum fund was
actually better than the pure midcap
index and one of the reasons for that is
if you remember what I shared as to how
momentum investing works when a stock
starts falling in price it is more like
ly to fall as per the momentum style of
investing methodology now because of
that the moment that starts happening
fund managers tend to get out of
positions and they tend to hold more
cash at times and because of that at
times the fall can be cushioned the
third type of factor is the Nifty Alpha
50 which has returned a whopping
77.9 5% in the past one year it's an
index of 50 stocks that has been
selected from the 300 largest stocks in
India
and the way these 50 stocks are selected
is very unique so in the world of
investing Alpha means the difference
between the performance of a security
like say a stock against its comparable
index so let's check that the nifty50 in
the past one year has given
26.8% we'll compare that against State
Bank of India stock and see if there's a
difference there so I'll enter SBI here
so as you can see in the past one year
the nifty50 at 26% plus whereas SBI is
Plus 41% so SBI has an alpha of about
15% in this particular instance now in
the Nifty Alpha 50 index the performance
of the top 300 stocks is ranked as per
the alpha they have generated and the
stock with the highest Alpha is given
the largest weightage and the top 50
stocks from within that form the Nifty
Alpha 50 index at this moment Kalan
dwellers suzlon energy and Indian
Railway Finance Corporation have the
highest allocation in this particular
index as of July 2024 now let's quickly
compare the returns of the alpha 50
index and the nifty 50 index and how an
sip in both would have done over the
years if you notice the alpha 50 index
generally has done better than the
nifty50 index except for a very short
period in the late 2000 and early
2010s uh even during the covid crash if
you notice at the lowest point the
nifty50 index was negative minus 4% over
a 5year period for an sip whereas the
alpha 15 index was a little higher than
that and - 2.6 and as the market
recovered Alpha 50 index really shot up
and if you notice in the past 5 years
the alpha 50 index has returned
annualized returns of 40% whereas the
nifty50 is half of that at 21 odd per.
to give you the exact numbers an sip in
the Nifty Alpha 50 index has given
median 5year rolling returns of
17.7% while the nifty 50 has returned
133% now that just means that sip of
10,000 rupees per month in the alpha 50
index would have become about 9.6 laks
in 5 years while in the nifty 50 it
would have grown to 8.48 lakhs but
remember the alpha 50 index comes with
its own risks it is more volatile and
that's understandable since all the
stocks in it are selected based on how
much they move compared to the index so
it has a standard deviation of 10.19
versus nifty50 is
4.68 and right now kotak and bandhan
offer funds that track this particular
index their total expense ratios are 0.3
and 0.34 respectively so there's hardly
any difference between the two now this
index can be a good idea if you're okay
with handling it's much higher
volatility I personally stay away from
it and would rather prefer a momentum
index or even a good old nifty50 index
because of the alpha index's higher
volatility the fourth type is the Nifty
top 10 equal weight index which has
given
20.32 returns in the past year this
index only has 10 stocks and they
selected from a universe of the 50
largest stocks in India or the nifty50
these 10 stocks are the largest stocks
within the nifty50 index and an equal
allocation is assigned to each stock and
the index is rebalanced every 6 months
it is kind of a new Index right now and
was only launched in June
2024 and currently in fact has only one
fund that tracks it which is floated by
DSP this is how the index looks like in
August 2024 and currently infosis ITC
and TCS have the highest allocation in
it now this allocation will keep
changing based on how these top 10
stocks perform and after 6 months the
index will be rebalanced and all stocks
will once again have a weightage of 10%
each and even the stocks in the index
may change depending on how much
weightage they have in the nifty50
itself now in sip in the Nifty top 10
equal weight index has generated a
return of 15.2% over any 5year period on
a rolling basis higher than that of the
Nifty is 12.5% and at the same time
here's the best part it has given these
higher returns while having a lower
standard deviation of 3.99 versus
nifty50 is 4.39 and even though this
index was only officially launched
recently its verified back tested data
from the National Stock Exchange has
been available from March 2006 let's
quickly go through the returns of the
top 10 equal weight index versus the
nifty50 and you would notice that the
top 10 equal weight index has actually
performed better than the nifty50 almost
every single single time what's very
interesting to note is that during the
covid crash the nifty50 was down minus
4.4% on a 5year annualized basis for an
sip whereas the Nifty top 10 equal
weight index was positive a marginal
positive return but that just tells you
that it is much better at absorbing
shocks when the markets are not doing
well which is also by the way translated
in the standard deviation that I shared
with you the fifth factor is the Nifty
500 value 50 index that has generated
wait for it I've kept the best for the
last
86.2% returns in the past 1 year this
index follows the value style of
investing and it looks at a company's
fundamentals it has 50 stocks in it
selected from a universe of 500 stocks
and each of these 500 stocks is assigned
a value score which is based on the
earnings to price ratio the book value
to price ratio the sales to price ratio
and the dividend yield this index is
once again rebalanced every 6 months and
it's current top Holdings include OMC
ntpc and coal India and sip in this
particular index has generated a return
of 16% higher than the Nifty 500's 13.9%
on a 5year rolling basis but the value
index is standard deviation is very high
at 13.1% versus Nifty 500's
5.29% now value style of investing is
generally considered safer and is
traditionally known to perform well when
the stock market is not doing well
let's see if that holds true in the
Indian context as well so here you go
the value index and the Nifty 500 Index
have performed well at different points
of time and they have beaten each other
at different points of time if you
notice the covid crash once again
believe it or not the value index fell
byus 20% that was its 5year annualized
return whereas the nift 500 Index was
only down minus 5% so it's much more
volatile as again seen in the standard
deviation but there have been times when
the value index has done well so just
before the covid crash the 5ye period
before that then the early 2010s and
even the past 2 to 3 years I would want
stocks based on the value style of
investing in my portfolio but I would
aim to get that exposure through
actively manage funds rather than an
index fund that's it for today I hope
you like this video subscribe to the
channel because a lot of effort goes
into making these videos and comment
down below the like button which topics
you want me to cover in the future and
I'll catch you in the next one
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