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 this point, 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 reside information for the index is accessible after the launch date. Base date is an previous date from which the index supplier has supplied the back-fitted information (based mostly 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, reside information for the index might be accessible solely after August 25, 2020 (the launch date).

Till now, I’ve in contrast the efficiency of varied index merchandise in opposition to Nifty 50 or their universe of shares since the bottom date. Nonetheless, you’d count on 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 might 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 right now (January 25, 2024).

How does that assist?

Effectively, whereas the previous efficiency (good or dangerous) of any issue doesn’t assure future efficiency (good or dangerous), I might clearly NOT be snug 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 reside information could a minimum of inform you the place to not make investments.

And I feel the efficiency because the launch date (reside information) is extra dependable than the efficiency because the base date. Sure, the reside information ought to be accessible for moderately lengthy interval. The longer, the higher.

I’ve picked up the issue indices

1. The place the reside information is accessible for a minimum of 3 years (the issue indices had 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 previous)

 This put up is NOT to persuade you to put money into issue indices. This evaluation is for educational functions solely. I’ll simply current the information 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 direction of the tip of this put up. These posts focus on index methodology and efficiency comparability intimately. I’ve additionally written a put up evaluating the efficiency of varied issue indices however that put up can be based mostly on back-fitted information. On this put up, 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 information right into a single desk

How do Issue indices examine in opposition to one another?

Since we’re specializing in reside 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 word that the inventory markets have been extraordinarily sturdy over the past 3 years. There are particular type of shares that are inclined to do higher in bull markets. As an example, you’d count on mid and small cap shares to do properly throughout bull markets. Therefore, don’t base your judgement on issue indices based mostly on the simply efficiency of the final 3 years. Take a look at long run reside information, if accessible.

Caveats and Factors to Observe

1. Previous efficiency doesn’t assure future returns.
2. In contrast to market cap-based indices, these issue indices are comparatively nascent. Issue ETFs and index fund are a good latest improvement. Not solely can issue methods exit of favour, however alpha (extra returns) may also shrink/vanish when more cash chases a selected issue technique (or attributable to another purpose). You have to all the time be alive to this risk.
3. Whereas I’ve simply in contrast the return efficiency, you could not base your funding selections solely on returns efficiency. As an investor, you could wish to have a look at different points comparable to risk-adjusted returns, volatility, drawdown, rolling returns as properly.
4. I’ve in contrast the efficiency of Whole Returns Index (TRI). Nonetheless, you can not put money into an index. You’ll be able to make investments solely in an ETF or an index fund. You have to test if the respective ETF or index fund has been monitoring the index properly. For those who discover the monitoring distinction too excessive, dig deeper. A excessive monitoring distinction may very well be due to index structure methodology as properly.
5. Every issue index could 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.