Imagine you’re creating a fantasy cricket team on Dream11. You could simply pick the most popular players, hoping they’ll perform well. But seasoned players know that a winning team requires a strategy beyond just picking big names. That’s where smart-beta investing comes in, offering a strategic approach to building your investment portfolio
What is Smart-Beta?
Think of smart-beta as a smarter way to build your Dream11 team, but instead of cricketers, you’re selecting stocks. It’s not about blindly following the crowd (passive investing) or trying to outguess every move (active investing).
Smart-beta is a way to invest that’s a bit of a hybrid. It’s not as hands-off as simply buying an index fund (passive investing), but it’s not as hands-on as picking individual stocks yourself (active investing).
Instead, smart-beta uses rules to pick stocks based on certain factors that research suggests lead to better returns over time. These factors could be things like:
- Value (Consistent Performers): Like reliable batsmen who consistently score runs, value stocks are companies with solid fundamentals but may be underpriced compared to their peers.
- Quality (All-Rounders): Similar to all-rounders who excel in batting, bowling, and fielding, quality stocks are companies with strong financials, stable earnings, and good management.
- Momentum (In-Form Players): Like players on a hot streak, momentum stocks have been performing well recently and are likely to continue their upward trajectory.
- Low Volatility (Dependable Players): These are like consistent players who rarely have bad games. Low volatility stocks have stable prices and are less likely to experience large fluctuations.
Nifty200 Alpha 30 Index
The Nifty200 Alpha 30 Index is a smart-beta index designed to capture the performance of the 30 highest alpha-generating stocks within the Nifty 200 universe. Launched by NSE Indices Limited, it’s a unique offering that seeks to provide investors with exposure to companies that consistently outperform their benchmarks. This index is rebalaced quarterly.
What is Alpha here?
Imagine you’re watching a cricket match. You expect a batsman to score a certain number of runs based on their average and the conditions of the game. But sometimes, a batsman exceeds expectations and scores a lot more runs than predicted.
Jensen’s Alpha or simply Alpha is like that extra score in investing. It measures how much better (or worse) an investment has done compared to what you would normally expect, given the risk involved.
The 30 stocks from Nifty200 are selected based on this Jensen’s Alpha to form Nifty200 Alpha 30 index.
Returns and Statistics
| Indices | 6M | 1 Yr | 2 Yr | 3 Yr | 5 Yr | 7 Yr | 10 Yr | 15 Yr |
| Nifty200 Alpha 30 Index | 36.0% | 79.4% | 46.8% | 32.7% | 28.8% | 23.4% | 25.2% | 22.4% |
| Nifty 50 Index | 12.5% | 23.0% | 17.9% | 14.5% | 15.0% | 14.4% | 13.4% | 12.8% |
| Nifty Midcap 150 Index | 21.2% | 54.0% | 35.8% | 26.7% | 25.6% | 19.6% | 20.5% | 18.8% |
Nifty200 Alpha 30 Index has done relatively better than other indices on point to point basis.
| Indices | 15 Yr | 10 Yr | 7 Yr | 5 Yr | 3 Yr |
| Nifty200 Alpha 30 Index | 24.8% 27.1% 30.3% 37.4% 42.5% | | | | |
| Nifty50 Index | 14.0% | 14.9% | 16.1% | 17.7% | 16.1% |
| Nifty LargeMidCap 250 Index | 17.7% | 19.2% | 21.5% | 25.6% | 25.6% |
Nifty200 Alpha 30 Index done well from SIP perspective as well.
| Statistics | 1 Year | 5 Year | Since Inception |
| Std. Deviation | 22.38 | 23.12 | 24.61 |
| Beta (NIFTY 50) | 1.34 | 1.01 | 1.00 |
| Correlation (NIFTY 50) | 0.76 | 0.84 | 0.87 |
Std. Deviation which indicator of volatility, is considerable high in this index.
*Data source : NSE Indices
Who Should Consider Smart-Beta Funds?
- Investors who want a more strategic approach than simply following the market.
- Investors who are comfortable with some risk for potentially higher returns.
- Investors who want a cost-effective alternative to actively managed funds.
How to Invest in Smart-beta Index through Mutual Funds?
Currently, there is one primary mutual fund scheme based on the Nifty200 Alpha 30 Index:
- Mirae Asset Nifty 200 Alpha 30 ETF: This is an Exchange Traded Fund (ETF) that directly tracks the Nifty200 Alpha 30 Index. It aims to replicate the index’s performance by investing in the same 30 high-alpha generating stocks.
Additionally, there is a NFO of Fund of Fund (FoF) scheme that invests in this ETF:
Mirae Asset Nifty 200 Alpha 30 ETF Fund of Fund: This open-ended fund primarily invests in the Mirae Asset Nifty 200 Alpha 30 ETF, allowing you to tap into the potential of high-alpha generating stocks.
Key Details of NFO:
- NFO Period: July 8, 2024 - July 22, 2024
- Continuous Sale & Repurchase Begins: July 29, 2024
- Minimum Investment During NFO : Rs. 5000/- and in multiple of Rs. 1 thereafter.
- SIP: Rs. 500 and in multiple of Rs. 1 thereafter.
Detailed NFO presentation can also be downloaded from here.
The Bottom Line
Smart-beta investing is a powerful tool for investors who want to take a more strategic approach to building their portfolios. By understanding how it works, you can decide if it’s the right strategy for you and your financial goals. Just like in Dream11, a well-thought-out strategy can be the key to success.
