How have the Issue Indices carried out since launch?

Over the previous few years, NiftyIndices and S&P have launched numerous issue indices (Worth, Momentum, Low Volatility, High quality, Alpha, or multi-factor) for Indian shares. And the AMCs have launched numerous index funds on such indices cashing in on the recognition and the latent demand from the buyers.

To date, so good.

When any index is launched, there’s a launch date and there’s a base date. Launch date is the date on which the index was launched. And the dwell information for the index is out there after the launch date. Base date is an outdated date from which the index supplier has supplied the back-fitted information (primarily based on technique). As an example, NiftyIndices launched Nifty 200 Momentum 30 index on August 25, 2020 (launch date) with April 1, 2005 as the bottom date. Therefore, dwell information for the index will probably be obtainable solely after August 25, 2020 (the launch date).

Till now, I’ve in contrast the efficiency of assorted index merchandise towards Nifty 50 or their universe of shares since the bottom date. Nonetheless, you’ll anticipate to pick solely these methods (or these definition of methods) which have delivered superior returns up to now. Therefore, the previous efficiency from base date (a minimum of till the launch date) for many indices will probably be good.

However how have these indices carried out since their launch?

Let’s discover that out.

I examine efficiency of issue indices since their respective launch dates till as we speak (January 25, 2024).

How does that assist?

Properly, whereas the previous efficiency (good or unhealthy) of any issue doesn’t assure future efficiency (good or unhealthy), I might clearly NOT be comfy investing in merchandise/issue indices that haven’t delivered superior efficiency up to now (until I’ve sturdy conviction in that method). Is smart, proper? Such an evaluation on dwell information might a minimum of inform you the place to not make investments.

And I believe the efficiency for the reason that launch date (dwell information) is extra dependable than the efficiency for the reason that base date. Sure, the dwell information ought to be obtainable for fairly lengthy interval. The longer, the higher.

I’ve picked up the issue indices

1. The place the dwell information is out there for a minimum of 3 years (the issue indices have been launched a minimum of 3 years again) AND
2. Have an ETF or an index fund monitoring these indices (Observe: ETF/index fund will be lower than 3 years outdated)

 This submit is NOT to persuade you to put money into issue indices. This evaluation is for educational functions solely. I’ll simply current the info and belief you to make your personal evaluation.

The next 9 issue indices met the eligibility standards.

I’ve written about most of those indices up to now. Sharing hyperlinks in the direction of the top of this submit. These posts focus on index methodology and efficiency comparability intimately. I’ve additionally written a submit evaluating the efficiency of assorted issue indices however that submit can be primarily based on back-fitted information. On this submit, we deal with efficiency since launch.

#1 Nifty 50 Equal Weight

#2 Nifty 50 Worth 20 Index

#3 Nifty 100 High quality 30 index

#4 Nifty 100 Low Volatility 30

#5 Nifty 200 Momentum 30 index

#6 Nifty 200 High quality 30 Index

#7 Nifty Midcap 150 High quality 50 index

#8 Nifty Alpha Low Volatility 30

#9 Nifty Alpha 50

Compiling the info right into a single desk

How do Issue indices examine towards one another?

Since we’re specializing in dwell information, we have to first discover the index that was launched final.

Of all of the issue indices thought of, Nifty 200 Momentum 30 index was the final one to be launched.

Launched on August 25, 2020.

I examine the efficiency of all issue indices since that date till January 25, 2024.

Observe: Please notice that the inventory markets have been extraordinarily sturdy over the past 3 years. There are particular form of shares that are inclined to do higher in bull markets. As an example, you’ll anticipate mid and small cap shares to do nicely throughout bull markets. Therefore, don’t base your judgement on issue indices primarily based on the simply efficiency of the final 3 years. Have a look at long run dwell information, if obtainable.

Caveats and Factors to Observe

1. Previous efficiency doesn’t assure future returns.
2. Not like market cap-based indices, these issue indices are comparatively nascent. Issue ETFs and index fund are a good current growth. Not solely can issue methods exit of favour, however alpha (extra returns) may also shrink/vanish when extra money chases a specific issue technique (or attributable to another purpose). It’s essential to at all times be alive to this chance.
3. Whereas I’ve simply in contrast the return efficiency, you have to not base your funding choices solely on returns efficiency. As an investor, you might wish to have a look at different facets akin to risk-adjusted returns, volatility, drawdown, rolling returns as nicely.
4. I’ve in contrast the efficiency of Whole Returns Index (TRI). Nonetheless, you can’t put money into an index. You may make investments solely in an ETF or an index fund. It’s essential to test if the respective ETF or index fund has been monitoring the index nicely. In the event you discover the monitoring distinction too excessive, dig deeper. A excessive monitoring distinction might be due to index structure methodology as nicely.
5. Every issue index can have its personal distinctive inventory weightage methodology. If an index methodology can assign a excessive weightage to a much less liquid inventory, getting out and in of the much less liquid shares (on the time of together with and exclusion from index) can typically trigger issues.