How have the Issue Indices carried out since launch?

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

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 stay information for the index is out there after the launch date. Base date is an outdated date from which the index supplier has offered the back-fitted information (primarily based on technique).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, stay 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 in opposition to 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 previously. 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 in the present day (January 25, 2024).

How does that assist?

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

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

I’ve picked up the issue indices

1. The place the stay information is out there 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 (Word: ETF/index fund could be lower than 3 years outdated)

 This put up is NOT to persuade you to put money into issue indices. This evaluation is for tutorial functions solely. I’ll simply current the information and belief you to make your individual evaluation.

The next 9 issue indices met the eligibility standards.

I’ve written about most of those indices previously. 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 assorted issue indices however that put up can be primarily based on back-fitted information. On this put up, we concentrate on 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 stay information, we have to first discover the index that was launched final.

Of all of the issue indices thought-about, 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.

Word: Please observe that the inventory markets have been extraordinarily sturdy over the past 3 years. There are specific type of shares that are likely to do higher in bull markets. As an example, you’ll anticipate mid and small cap shares to do effectively throughout bull markets. Therefore, don’t base your judgement on issue indices primarily based on the simply efficiency of the final 3 years. Take a look at long term stay information, if obtainable.

Caveats and Factors to Word

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 fair latest improvement. Not solely can issue methods exit of favour, however alpha (extra returns) can even shrink/vanish when more cash chases a specific issue technique (or because of some other purpose). You could all the time be alive to this chance.
3. Whereas I’ve simply in contrast the return efficiency, you will need to not base your funding choices solely on returns efficiency. As an investor, chances are you’ll need to have a look at different elements similar to risk-adjusted returns, volatility, drawdown, rolling returns as effectively.
4. I’ve in contrast the efficiency of Whole Returns Index (TRI). Nonetheless, you can not put money into an index. You may make investments solely in an ETF or an index fund. You could examine if the respective ETF or index fund has been monitoring the index effectively. Should you discover the monitoring distinction too excessive, dig deeper. A excessive monitoring distinction might be due to index structure methodology as effectively.
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 generally trigger issues.