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.

Thus far, 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 on the market 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 illustration, 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 will probably be obtainable solely after August 25, 2020 (the launch date).

Till now, I’ve in contrast the efficiency of varied index merchandise towards Nifty 50 or their universe of shares since the bottom date. Nonetheless, you’ll anticipate to pick out solely these methods (or these definition of methods) which have delivered superior returns prior to now. Therefore, the previous efficiency from base date (at the least 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 evaluate 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 unhealthy) of any issue doesn’t assure future efficiency (good or unhealthy), I’d clearly NOT be snug investing in merchandise/issue indices that haven’t delivered superior efficiency prior to now (until I’ve robust conviction in that method). Is sensible, proper? Such an evaluation on reside information might at the least let you know the place to not make investments.

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

I’ve picked up the issue indices

1. The place the reside information is on the market for at the least 3 years (the issue indices have been launched at the least 3 years again) AND
2. Have an ETF or an index fund monitoring these indices (Be aware: ETF/index fund will be lower than 3 years previous)

 This publish is NOT to persuade you to put money into issue indices. This evaluation is for tutorial 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 prior to now. Sharing hyperlinks in the direction of the top of this publish. These posts talk about index methodology and efficiency comparability intimately. I’ve additionally written a publish evaluating the efficiency of varied issue indices however that publish can be based mostly on back-fitted information. On this publish, we give attention to 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 evaluate towards 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 evaluate the efficiency of all issue indices since that date till January 25, 2024.

Be aware: Please be aware that the inventory markets have been extraordinarily robust during the last 3 years. There are particular type of shares that are inclined to do higher in bull markets. As an illustration, you’ll anticipate mid and small cap shares to do nicely throughout bull markets. Therefore, don’t base your judgement on issue indices based mostly on the simply efficiency of the final 3 years. Have a look at long term reside information, if obtainable.

Caveats and Factors to Be aware

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 an excellent latest growth. 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 on account of some other purpose). You have to at all times be alive to this chance.
3. Whereas I’ve simply in contrast the return efficiency, it’s essential to not base your funding choices solely on returns efficiency. As an investor, you might need to have a look at different points equivalent to risk-adjusted returns, volatility, drawdown, rolling returns as nicely.
4. I’ve in contrast the efficiency of Complete 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 nicely. For those who discover the monitoring distinction too excessive, dig deeper. A excessive monitoring distinction could possibly be due to index structure methodology as nicely.
5. Every issue index may 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.