5 Hidden Mutual Funds to Build MASSIVE Wealth | Udayan Adhye

Summary

In 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

• 🌟 Factor investing is the second most popular investment strategy globally, yet it's relatively unknown in India.
• 📈 Momentum investing focuses on stocks that have been increasing in price, expecting the upward trend to continue.
• 💹 The Nifty 200 Momentum 30 Index, composed of high-momentum stocks from India's largest 200 stocks, has shown significant returns.
• 🚀 The past one-year returns of the Nifty 200 Momentum 30 Index have been over 60%, outperforming the Nifty 50.
• 📊 The 5-year median rolling returns of the Nifty 200 Momentum 30 Index are notably higher than those of the Nifty 50.
• 🔄 The Nifty Midcap 150 Momentum 50 Index selects high-momentum stocks from midcaps, showing impressive one-year returns of 70.75%.
• 📊 The Nifty Alpha 50 Index selects stocks based on their outperformance (Alpha) against the index, with a one-year return of 77.95%.
• 🔢 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.
• 💰 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%.
• 📉 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

00:00

💹 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.

05:01

🚀 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.

10:02

📈 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.

Keywords

💡Factor Investing

Factor investing is a strategy that involves focusing on specific 'factors' or characteristics of stocks that historically have been rewarded by the market. In the context of the video, factor investing is presented as a powerful method that can significantly boost investment returns. The video discusses various factors like momentum, alpha, and value, and how they can be used to select stocks for investment.

💡Momentum Investing

Momentum investing is a factor investing strategy that involves investing in stocks that have shown a strong upward price movement over a certain period. The video explains that the Nifty 200 Momentum 30 index, which is composed of 30 stocks with the strongest momentum, has historically outperformed the broader market indices like the Nifty 50.

💡Normalized Momentum Score

The normalized momentum score is a scientific method used to calculate momentum, taking into account a stock's 6-month and 12-month price returns adjusted for volatility. This metric is crucial for selecting stocks for the momentum index funds discussed in the video.

💡Index Funds

Index funds are a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the S&P 500. The video mentions several index funds that track different momentum indices, suggesting that these funds can be a good way to gain exposure to factor investing strategies.

💡Alpha

In investing, alpha represents the performance of an investment relative to a benchmark index. The Nifty Alpha 50 index, discussed in the video, selects stocks based on their alpha, aiming to identify those that have outperformed the broader market. This strategy seeks to capture stocks with strong individual performance rather than market movements.

💡Midcap Stocks

Midcap stocks refer to companies that have a moderate market capitalization, falling between small-cap and large-cap stocks. The video discusses the Nifty Midcap 150 Momentum 50 index, which focuses on midcap stocks with high momentum, illustrating how factor investing can be applied to different market capitalization segments.

💡Value Investing

Value investing is an investment strategy that involves selecting stocks that appear to be trading for less than their intrinsic value. The Nifty 500 Value 50 index, mentioned in the video, selects stocks based on value metrics like earnings to price ratio, aiming to find undervalued companies that the market may eventually recognize.

💡Equal Weight Index

An equal weight index assigns the same weight to each constituent stock, as opposed to market capitalization-weighted indices where larger companies have a greater influence. The Nifty Top 10 Equal Weight index, discussed in the video, rebalances every six months to maintain equal weights, aiming to reduce the impact of any single stock's performance on the index.

💡Volatility

Volatility refers to the degree of variation in a stock or index's price over time. The video discusses the volatility of different indices, such as the Alpha 50 and the Value 50, which can be higher due to the nature of the factors they track, indicating the potential for greater price swings and risk.

💡Expense Ratio

The expense ratio is the annual fee charged by a fund to cover its operating expenses. The video mentions that when selecting an index fund, one should consider the expense ratio, as lower fees can lead to higher net returns for investors over time.

💡Standard Deviation

Standard deviation is a statistical measure of the dispersion of a dataset, often used to quantify the risk or volatility of an investment. The video uses standard deviation to compare the risk levels of different indices, with higher standard deviation indicating greater risk.

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

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I'll catch you in the next one