Nifty 200 Momentum 30 and Nifty Alpha 50 indices have given the best returns. Low Volatility and Quality indices are the least volatile and post the best risk-adjusted metrics.
I have compared the performance of factor indices in earlier posts, but I have never compared all of them in a single post. Along with prominent cap-based indices. In this post, I compare the following:
- 4 Market cap-based indices: Nifty 50, Nifty Next 50, Nifty Midcap 150, Nifty Smallcap 250
- Alpha: Nifty Alpha 50
- Value: Nifty 50 Value 20 (NV20), Nifty 500 Value 50
- Quality: Nifty 200 Quality 30, Nifty Midcap 150 Quality 50
- Low Volatility: Nifty 100 Low Volatility 30
- Momentum: Nifty 200 Momentum 30
- Multi-factor index: Nifty Alpha Low Volatility 30
12 indices in total. 4 cap-based and 8 factor indices. I have written about many of the following indices before too.
- Nifty 50 TRI
- Nifty Next 50 TRI (Review 1) (Review 2)
- Nifty Midcap 150
- Nifty Smallcap 250
- Nifty 200 Momentum 30 (Review 1) (Review 2)
- Nifty 200 Quality 30 (Review)
- Nifty Alpha 50 (Review)
- Nifty 100 Low Volatility 30 (Review 1) (Review 2)
- Nifty Alpha Low Volatility 30 (Review 1) (Review 2)
- Nifty 50 Value 20 Index (NV20) (Review)
- Nifty 500 Value 50
- Nifty Midcap 150 Quality 50 (Review 1) (Review 2)
I use the data from April 1, 2005, until March 31, 2022. For Nifty Alpha Low Vol 30 index, the Total returns index (TRI) data was not easily downloadable from NiftyIndices website. Hence, I have used price returns data for the index. Have used TRI for other indices.
Nifty Factor Indices (Nifty Strategy Indices): Calendar Year Performance
Let us start with calendar year returns.
Nifty Factor Indices (Nifty Strategy Indices): 5-year Performance
Nifty Factor Indices (Nifty Strategy Indices): CAGR, Rolling Returns, Sharpe Ratios
April 1, 2005 – March 31, 2022
The data for Nifty 50 Value 20 index is only from January 1, 2009. For other indices, the data is from April 1, 2005. In the previous chart, the performance metrics (CAGR, Sharpe ratios, drawdowns) are favourably affected (since market meltdown due to global financial crisis is not considered for NV20). Not fair to other indices. In the chart below, I recalculate the performance metrics from January 1, 2009-March 31, 2022.
January 1, 2009 – March 31, 2022
How do you use this information?
No investment strategy, no matter how good, works all the time. No investment strategy, no matter how bad, fails all the time.
Each strategy goes through ups and downs and will test your patience. If you pick an investment strategy (factor index) simply based on past performance (and without conviction), you may jump the ship at the wrong time.
About how to use this information in your portfolio, I have written two posts recently.
How to build a long-term portfolio? If you want to invest in factor indices, these could be part of your satellite equity portfolio.
Another post (How to construct “the Best portfolio” using index funds and ETFs?) discusses how to optimize your portfolio for various performance metrics (high CAGR, low standard deviation, high Sharpe ratios, low drawdowns). Focus on the metric that appeals to you the most. Use the indices/ETFs that rank the best on those metrics.
A few caveats
- The performance of many factor indices looks super impressive. However, past performance does not guarantee future performance.
- While I have considered the data from April 1, 2005, many of these factor indices were launched much later. Hence, the outperformance by these factor indices may simply be a result of back-fitting. Performance on live data may turn out to be underwhelming.
- For performance metrics, the results will vary based on time-period considered. In fact, you can see that the results are different for (April 1, 2005-March 31, 2022) and (January 1, 2009-March 31,2022) data.
- Alpha (excess returns) from an investment strategy can shrink if serious money chases the strategy. For instance, for some of the strategies/factor indices, the index funds/ETFs have been launched very recently.
