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 from the traders.

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 dwell knowledge for the index is out there after the launch date. Base date is an outdated date from which the index supplier has supplied the back-fitted knowledge (based mostly on technique). For example, NiftyIndices launched Nifty 200 Momentum 30 index on August 25, 2020 (launch date) with April 1, 2005 as the bottom date. Therefore, dwell knowledge for the index shall 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 count on 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 (a minimum of till the launch date) for many indices shall 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 right this moment (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 snug investing in merchandise/issue indices that haven’t delivered superior efficiency prior to now (until I’ve sturdy conviction in that method). Is smart, proper? Such an evaluation on dwell knowledge could a minimum of inform you the place to not make investments.

And I believe the efficiency because the launch date (dwell knowledge) is extra dependable than the efficiency because the base date. Sure, the dwell knowledge ought to be obtainable for fairly lengthy interval. The longer, the higher.

I’ve picked up the issue indices

1. The place the dwell knowledge 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 Have an ETF or an index fund monitoring these indices (Observe: ETF/index fund might be lower than 3 years outdated)

 This submit is NOT to persuade you to spend money on issue indices. This evaluation is for educational functions solely. I’ll simply current the info 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 prior to now. Sharing hyperlinks in the direction of the top of this submit. These posts talk about index methodology and efficiency comparability intimately. I’ve additionally written a submit evaluating the efficiency of varied issue indices however that submit can also be based mostly on back-fitted knowledge. On this submit, 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 info right into a single desk

How do Issue indices evaluate towards one another?

Since we’re specializing in dwell knowledge, 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 evaluate the efficiency of all issue indices since that date till January 25, 2024.

Observe: Please be aware that the inventory markets have been extraordinarily sturdy over the past 3 years. There are specific type of shares that are inclined to do higher in bull markets. For example, you’ll 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. Have a look at long term dwell knowledge, if obtainable.

Caveats and Factors to Observe

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) also can shrink/vanish when extra money chases a specific issue technique (or on account of some other cause). It’s essential 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 selections solely on returns efficiency. As an investor, it’s possible you’ll wish to take a look at different facets comparable to risk-adjusted returns, volatility, drawdown, rolling returns as properly.
4. I’ve in contrast the efficiency of Complete Returns Index (TRI). Nonetheless, you can’t spend money on an index. You possibly can make investments solely in an ETF or an index fund. It’s essential to test if the respective ETF or index fund has been monitoring the index properly. Should you discover the monitoring distinction too excessive, dig deeper. A excessive monitoring distinction might be due to index structure methodology as properly.
5. Every issue index can 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.