Forum Views - June 2024
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FORUM VIEWS - JUNE 2024
strong performance among these factors. for instance,
almost 2,100 Cr has flown into momentum-based funds and
1100 Cr. in low volatility-based fund and almost 1,700 Cr in
Equal weight funds. The kind of trajectory that India is
witnessing is very similar to the developed markets like US
and experts believe that smart beta investing would become
central to India's asset management industry in the near
future.
Smart Beta strategies consider various factors when
constructing investment portfolios. These factors are specific
characteristics or attributes of stocks that have historically
been associated with excess returns or reduced risk.
Generally, 8 different type of factor’s are identified in terms of
explaining equity return and risk. These are namely, Value,
Size, Momentum, Quality, Dividend Yield, Volatility, Growth
and Liquidity. Most of the smart-beta products across the
globe are one or other variation of these 8 identified factors.
Regarding the structure of Smart Beta strategies, they can be
applied to various segments of the market, including large
caps, mid-caps, and small caps.
Investing in Smart Beta Funds can offer investors a
compelling combination of potential alpha generation, risk
management, transparency, and customization compared to
other options available in the market today. However, it's
essential for investors to conduct thorough due diligence and
consider their investment objectives and risk tolerance
before allocating capital to these funds.
5. What are some of the common factors that smart beta
strategies consider for investments? Are these strategies
around large caps, or can they be structured around mid-
and small caps too?
6. Can you enlist some of the benefits of investing in
Smart Beta Funds compared to other options that are
popular in the market today?
7. Smart Beta Funds work well in secular bull markets
where many and not just a few stocks are doing well. Do
you agree?
Not necessarily, yes something like Global Financial Crisis a
black swan event of 2008 is an outlier. But most smart-beta
even tends to do well in bear market as well specially to name
Low volatility and Quality. For instance, 2008, 2011 and 2015
was bad year for large-cap Nifty100 was -ve for these calendar
years by -56%, -26% and -0.8% respectively. However,
Nifty100 Low Vol 30 Index for calendar year 2008, 2011 and
2015 generated return of -42%, -12% and +9.8% respectively.
Clearly you can see that Low Vol 30 has done more than
reasonable job in protecting during bear market. Similarly,
Nifty Small cap 250 Index had fallen by 69% in 2008 and 26% in
2018. Nifty Small cap 250 Quality 50 Index from the same
universe had fallen only by 50% (2008) and ended up
generating +9.8% (2018). So, it’s important to understand
each factor and if it’s too confusing and then opt for multi-
factor like momentum-quality.
With over 25 years of exemplary experience in the Mutual Funds industry, Saket
is a seasoned professional with a proven track record of building successful
organizations from the ground up. As a visionary Co-Founder of ETF Junction
since January 2022, he has led the establishment of a thriving platform,
revolutionizing the investment landscape for ETFs.
His journey began in 1997 at Kothari AMC, India’s first private sector mutual
fund, where he played a pivotal role in establishing the Mutual Fund business in
the Eastern part of India. Subsequently, as Zonal Manager for Franklin Templeton
and Zonal Head for Bharati Axa Investment Managers, he showcased
exceptional leadership in driving growth and fostering client-centricity.
In 2013, he founded Rastey Commuting Services, transforming it into a
prominent player in transportation across India over nine successful years. The
company was awarded at the BID convention awards in Paris in 2019,
recognized as the best in quality service among car rental services in India.
Saket completed his management education at IIM Kolkata in 2000. His
extensive expertise lies in navigating the complexities of the Mutual Funds
domain and orchestrating organizational expansion. With an unwavering focus
on innovation and excellence, he is committed to making a significant impact on
the Mutual Funds industry.
Smart Beta Funds, also known as factor-based are a type of
investment fund that aims to outperform traditional index funds by
using a rules-based approach to construct a portfolio. These funds
are a hybrid between active and passive investing strategies, as they
rely on rules or algorithms to select and weight securities, rather
than simply tracking a market index.
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