![]() ![]() What per cent of the time in the last 16 years did each of the indices beat the Nifty on 1 and 3-year trailing returns. Factor Indices versus the NiftyĬharts below show just that. So, whether any active strategy, fundamental or factor-based, is worth the cost in terms of time and effort depends on its effectiveness in beating that benchmark return. Simply buying the Nifty is the easiest way for any investor to allocate to Indian equities. Hence you see various momentum smallcases, each applying their own version of momentum that have all, in general, done reasonably well over the last 18-24 months. However, one of the tests of whether a factor offers real potential for outperformance is if it offers similar results when implemented in different ways. The outcome will vary depending on the implementation. For example, when constructing a strategy that buys cheap or value stocks, you could use Price to Book, Price to Earnings, EV / EBIT or many other metrics or even a combination to arrive at your list of stocks. A strategy is an overarching quantitative investment philosophy, while these NSE indices are one interpretation of those strategies. We are using the terms “factor strategy” and “factor index” interchangeably though they are not. ![]() Which factors (if any) offer the best potential for outperformance, i.e.the NIFTY50 or one of the other broad market indices? Does factor investing beat buying and holding the market, i.e.The remaining 14 have start dates going back to April 2005, giving us a decent (though not great) time horizon of 16 years over which to compare them and the broad market indices. Of these 18, we removed 4, which had more recent index start dates making them unsuitable for comparison. Read our ELI5 explanation of what is factor investing here in the section titled unsurprisingly “What is factor investing?”įrom the 27 indices in this NSE category, removing non-factor-based indices like the Nifty50 USD Index and the NIFTY 50 Futures Index, we are left with 18 either single / multi-factor indices or smart-beta indices. ![]() A simpler way of thinking about factor or quantitative investing isįactor Investing is about defining a characteristic (also called factor or set of factors), and consistently applying a set of criteria to buy a diversified portfolio of stocks that share that characteristic. The NSE site describes Strategy Indices as “designed based on quantitative models/investment strategies to provide a single value for the aggregate performance of a number of companies.” That is close to how we think about “Factor Investing”. Here’s our comprehensive analysis of factor indices in India. As a corollary, do multi-factor strategies outperform single-factor strategies?.Which is the best factor investing strategy in India? Which factors (if any) offer potential for outperformance, i.e.Does factor investing in India beat buying and holding the market, i.e.As market-cap-weighted composites of the largest companies in India, they represent how the Indian stock market is doing.īut did you know the NSE has 96 indices of six different types? This post focuses on factor investing in India, Nifty Strategy Indices, a category that has grown prolifically in the last few years, with 27 different indices. When you hear “the index”, most investors think of the NIFTY50 or the NIFTY500. ![]()
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