HDFC has launched 3 smart-beta (issue) ETFs.
- HDFC Nifty 100 High quality 30 ETF: Whereas I’ve not written a devoted put up on this index, I’ve in contrast the efficiency of a High quality index (albeit a special one. Nifty 200 High quality 30 index) in lots of posts. I don’t anticipate the efficiency to be too totally different.
- HDFC Nifty 50 Worth 20 ETF (NV20): Have reviewed the efficiency of this index (Nifty 50 Worth 20) earlier than and the findings had been beneficial. You’ll be able to examine this index and the way it’s a mixture of high quality and worth components right here.
- HDFC Nifty Progress Sectors 15 ETF: We now have by no means mentioned this index earlier than.
A High quality ETF. A Worth ETF. And a Progress ETF.
I’ve mentioned each Nifty High quality index and Nifty 50 Worth 20 index within the following posts too.
Find out how to assemble the “Greatest Portfolio” utilizing index funds and ETFs?
Efficiency comparability of all issue indices (High quality, Low Volatility, Momentum, Worth, Alpha)
I additionally reproduce a desk from the above posts. And you’ll see the efficiency of the High quality and NV20 indices is spectacular, not less than in again assessments.
By the way in which, many NV20 ETFs (ICICI, Nippon, Kotak) have been round for a over 5 years and the efficiency has been spectacular. So, we aren’t simply speaking about again assessments. These funds have delivered within the dwell knowledge too.
Subsequently, on this put up, allow us to concentrate on HDFC Progress Sectors 15 ETF. This can be a fully new providing, and we have now no different index funds/ETF monitoring this index.
Allow us to see if you happen to ought to make investments on this ETF.
HDFC Progress Sectors 15 ETF: How shares are chosen?
- Replicates the efficiency of Nifty Progress Sectors 15 index.
- Because the title suggests, the index picks 15 “Progress” shares. Nonetheless, methodology is kind of sophisticated.
- First, the “Progress” sectors are chosen. Then, “Progress” shares inside these sectors are chosen.
- To pick out the “Progress” Sectors, common yearly P/E and P/B of Nifty sectoral indices is in contrast in opposition to common yearly P/E and P/B of Nifty 50. You could find the complete listing of Nifty Sectoral indices right here.
- These sectors with higher P/E and P/B are shortlisted. This Sector choice train is repeated each two years. Am unclear when that is due subsequent.
- From the chosen sectors, high 50% shares (as per free float market cap) are shortlisted.
- The shares are then ranked by EPS development frequency (EPS stands for Earnings per share) and high 15 shares are chosen. Undecided what EPS development frequency means. Weightage of any single inventory is capped at 15%.
- The shares’ rating is revisited, and index is rebalanced each 6 months.
- You’ll be able to learn the complete methodology right here.
Because the title suggests, the index tries to establish the very best “Progress” shares within the “Progress” sectors. Additionally, word the Sector rebalancing occurs each 2 years and shares rebalancing occurs each 6 months.
I copy the sectoral breakup and high constituents for Nifty Progress Sectors 15 index as on August 31, 2022. Supply: Factsheet
As on August 31,2022, the index includes solely 3 sectors. P/E and P/B are fairly excessive. Alongside anticipated strains.
Which funds/indices to check HDFC Nifty Progress Sectors 15 ETF with?
Given the way in which sectors and shares are picked for this index, this appears yet one more definition of momentum. As a substitute of counting on value knowledge, it depends on elementary knowledge.
First, decide sectors with excessive P/E and P/B. As soon as the sectors are picked, decide shares with the excessive EPF development frequency.
Subsequently, whereas assessing the efficiency of this index (Nifty Progress Sectors 15), it is smart to check the efficiency in opposition to Nifty 200 Momentum 30 index too.
On this put up, we’ll evaluate the efficiency of the next 3 indices.
- Nifty 50 TRI (No comparability is full with Nifty 50)
- Nifty Progress Sectors 15 TRI
- Nifty 200 Momentum 30 TRI (since Nifty Progress Sectors 15 appears to be yet one more definition of momentum)
Nifty Progress Sectors 15 index was launched in 2014. Base Date: January 1, 2009
Nifty 200 Momentum 30 index was launched in 2020. Base date: April 1, 2005
HDFC Nifty Progress Sectors 15 ETF: Efficiency Comparability
We evaluate the efficiency of the three indices since January 1, 2009, till August 31, 2022.
Nifty 50 CAGR: 15.21% p.a.
Nifty Progress Sectors 15: 18.95% p.a.
Nifty 200 Momentum 30: 21.58% p.a.
The efficiency of all of the indices is spectacular. Momentum index is the very best performer.
Nifty Progress Sectors 15 beats Nifty 50 comfortably.
However that is only a snapshot in time. We have to analyze the consistency of returns too. Thus, we’ll have a look at calendar yr and rolling returns too.
As you’ll be able to see, Nifty Progress Sectors 15 was the very best performer in 4 out of first 5 years. From 2009 till 2013, the index was the very best in all of the years anticipate 2012.
And when was the index launched? 2014
Subsequently, you can’t deny a component of curve-fitting to get the very best outcomes.
From 2014 till 2021, the Nifty Progress Sectors 15 finishes final in 6 out of 8 accomplished years. Beats Nifty 50 in just one out of 8 accomplished years.
Right here is the CAGR comparability for the three indices because the launch of Nifty Progress Sectors 15. Whereas the launch date was Might 22, 2014. I think about the efficiency since Might 31, 2014.
Nifty 50: 13.0% p.a.
Nifty Progress Sectors 15: 11.9% p.a.
Nifty 200 Momentum 30 index: 21.1% p.a.
Nifty Progress Sectors 15 index has underperformed Nifty 50 in additional than 8 years since its launch. The index has solely outperformed Nifty in again assessments.
That is adequate cause to STAY AWAY from HDFC Nifty Progress Sectors 15 ETF.
HDFC Nifty Progress Sectors 15 ETF: Rolling Returns
As talked about earlier, the relative efficiency of Nifty Progress 15 ETF isn’t spectacular since 2014.
HDFC Nifty Progress Sectors 15: Most Drawdown and Rolling threat
The nice efficiency is just earlier than the launch date (Might 2014).
On the rolling threat entrance, the Nifty Progress Sectors 15 does properly initially (even after Might 2014) however then unravels.
Nifty Progress Sectors 15 Index: Efficiency Abstract
Whereas the efficiency of Nifty Progress Sectors 15 index appears spectacular since inception (base date), the efficiency isn’t good since its launch.
There isn’t any cause to speculate on this ETF.
HDFC Nifty Progress Sectors 15 ETF Vs Nifty Momentum index funds and ETFs
Nifty Progress Sectors appears yet one more definition of momentum. And depends on elementary knowledge as an alternative of technical (value) knowledge. Nonetheless, it fares badly in comparison with the standard definition of momentum that solely considers solely value knowledge and volatility. Nifty 200 Momentum 30 picks momentum shares primarily based on value knowledge.
Nifty 200 Momentum 30 index simply beats Nifty Progress Sectors 15 index. Chances are you’ll argue that the Momentum index is even newer with launch date in 2020 and therefore its efficiency isn’t reliable both. That’s proper however the definition of momentum is extra standard in Nifty 200 Momentum 30 index. And that provides extra confidence.
In fact, solely time will inform whether or not momentum investing (Momentum 30 index) will beat Nifty 50 over the long run.
Nonetheless, we do know that the momentum as outlined by Nifty Progress Sectors 15 doesn’t appear to work. Frankly, it’s weird to see HDFC AMC launching such a product.
It’s essential to additionally have a look at diversification within the two portfolios. In Nifty Progress Sectors 15 index (August 31, 2022), the cash is break up throughout simply 3 sectors. Distinction this with the breakup for Nifty 200 Momentum 30 index (as on August 31, 2022. As per factsheet).
So, Nifty 200 Momentum 30 index is extra diversified and has delivered a superior efficiency with a traditional definition of momentum.
Nifty Progress Sectors 15 index is concentrated and performs poorly in comparison with Nifty 200 Momentum 30 index.
Why would you decide up Nifty Progress Sectors 15 then?
I’m not suggesting that you will need to spend money on Nifty 200 Momentum 30 index funds or ETFs. It’s essential to make investments solely when you’ve got conviction in momentum investing. And even with that conviction, be ready for prolonged durations of underperformance.
All I’m suggesting is: Don’t spend money on HDFC Nifty Progress Sectors 15 ETF.
Featured Picture Credit score: Unsplash
