Factor This! November 2024
Top factor based Mutual Funds and ETFs
Performance Analysis of Factor-Based Indices on BSE and NSE
This monthly report presents a comprehensive analysis of the performance of various factor-based indices on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) over a short-term (one year) and long-term (20 years) period. The goal is to evaluate how these factor indices have performed relative to their benchmarks, and to identify the top-performing indices on both exchanges. The analysis also extends to identifying mutual funds and ETFs available for these indices.
Methodology
To compare the performance of the factor indices, we employed the following approach:
1. Data Selection: We used the closing values of the indices on the last trading day of each month, from December 2023 to November 2024.
2. Monthly Returns Calculation: Month-on-month percentage returns were calculated for each index.
3. Ranking: The indices were ranked from highest to lowest based on their percentage returns for each month. This allowed us to identify the best-performing factors over time.
4. Benchmark Comparison: The performance of each factor index was compared to its respective benchmark. The BSE Sensex was used as the benchmark for BSE indices, and the NIFTY 50 for NSE indices. This highlighted the relative performance of the factor indices against broader market indices.
5. NAV Calculation: The Net Asset Values (NAVs) of the indices were computed to provide a comparable metric across different indices.
BSE Indices Performance Analysis
We analyzed the following factor indices on the BSE:
- BSE Enhanced Value Index
- BSE Low Volatility Index
- BSE Momentum Index
- BSE Quality Index
Key Insights:
- Performance vs. Benchmark: All factor indices outperformed the BSE Sensex on multiple occasions. Among these, the Momentum Index was the most consistent in outperforming the benchmark, while the other indices — Value, Low Volatility, and Quality — had similar success.
Performance of BSE indices YTD
- BSE Momentum Index leads with highest YTD return at 36.26%
- BSE Enhanced Value Index follows closely at 27.04%
- BSE Quality Index shows strong performance at 19.08%
- BSE Low Volatility Index returned 13.97%
- BSE Sensex lags other factors with lowest YTD return of 10.47%
suggesting factor-based strategies outperformed the broader market in this period
2. Intra-Factor Comparison: A pattern of factor rotation was observed, where different factors outperformed others in different months. The Momentum Index ranked highest in terms of outperformance frequency, followed by the Value, Quality, and Low Volatility indices. The BSE Sensex performed on par with the Quality Index, but during market corrections, the benchmark itself ranked higher than most factor indices.
BSE Indices Ranking based on last 1 year data & Outperformance BSE Indices v/s BSE Sensex
Top 2 BSE factor indices based on performance
- BSE Enhanced Value Index
- BSE Momentum Index
NSE Indices Performance Analysis
The NSE offers a broader range of factor indices, including multi-factor indices. We examined their performance over the one-year period.
Key Insights:
- Performance vs. Benchmark: Similar to the BSE, most NSE factor indices outperformed the NIFTY 50 in several months. Value-based indices, such as NIFTY 500 Value 50 and NIFTY 200 Value 30, consistently outperformed the NIFTY 50. Other indices, like the NIFTY Small250 Quality 50, NIFTY Alpha 50, NIFTY MID 150 Momentum 50 and NIFTY 500 Momentum 50 also showed strong performance.
Performance of Top NSE Indices YTD returns
Key insight: Factor-based and broader market indices (including mid and small caps) have substantially outperformed the flagship NIFTY 50 index in this period
2. Intra-Factor Comparison: As seen in BSE, there was factor rotation within the NSE indices. Quality-based indices like NIFTY Small250 MomentumQuality100 and NIFTY Small250 Quality50 frequently ranked at the top.
Outperformance NSE Indices v/s NIFTY 50
Top 5 NSE factor indices:
- NIFTY 500 Value 50
- NIFTY 200 Value 30
- NIFTY Alpha 50
- NIFTY Midcap150 Momentum 50
- NIFTY 500 Momentum 50
Top 7 Factor Indices (BSE and NSE Combined)
Combining the insights from both exchanges, the top 7 factor indices over the last year are:
- BSE Enhanced Value Index
- BSE Momentum Index
- NIFTY 500 Value 50
- NIFTY 200 Value 30
- NIFTY Alpha 50
- NIFTY Midcap150 Momentum 50
- NIFTY 500 Momentum 50
Long-Term Factor Index Performance on NSE
While short-term data is useful for identifying recent trends, long-term analysis provides a more robust understanding of factor performance. Given the availability of over 20 years of data on NSE indices, we extended our analysis to cover this period, which includes multiple market cycles. The below table shows the data and analysis:
The top five factor indices over the long-term on the NSE are:
- NIFTY500 Multicap Momentum Quality 50
- NIFTY MidSmall 400 Momentum Quality 100
- NIFTY 200 Momentum 30
- NIFTY 500 Momentum 50
- NIFTY Midcap 150 Momentum 50
Mutual Funds and ETFs for Top Factor Indices
Top 7 Factor Indices (1-Year Performance BSE&NSE)
Top 5 Factor Indices (Long-Term Performance NSE)
Choosing the Best Funds
When selecting between multiple mutual funds or ETFs for a given index, investors should consider:
- Expense Ratio: A lower expense ratio translates to higher net returns for investors.
- Tracking Difference: This measures how closely a fund mirrors the performance of its underlying index. A lower tracking difference indicates better management efficiency.
Conclusion
- Factor indices generally outperform their benchmarks except during market corrections, where the benchmarks (BSE Sensex and NIFTY 50) tend to hold up better.
- Short-term data provides valuable insights into current market trends, but investment decisions are better made on long-term data, which covers multiple market cycles.
As always, past performance does not guarantee future results. Investors should align their decisions with their risk tolerance and investment objectives based on this analysis.
Watch the full video on youtube here: https://youtu.be/Ayhi-alvoyU
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Important Links
Youtube: https://www.youtube.com/@MomentumLab_IN
Twitter: https://x.com/MomentumLab_IN; https://x.com/assetlab_in
Disclaimer: We are not SEBI registered advisors. Any content shared on or through our digital media channels is for information and education purposes only and should not be treated as investment or trading advice. Please do your own analysis or take independent professional financial advice before making any investments based on your own personal circumstances. Investment in securities is subject to market risks; please carry out your due diligence before investing. And last but not least, past performance is not indicative of future returns.
