Factor funds based on value strategy have outperformed NIFT…

Currently, you can invest in 2 value-based factor indices.

1. NIFTY 50 Value 20 (or NV20)
2. S&P BSE Enhanced Value

There are 5 schemes based on NV20. 3 of them were launched over 6 years ago.

S&P BSE Enhanced Value has one fund by @MotilalOswalAMC, launched a few days back.

As NV20 has a longer history of funds, let’s look at it in detail.

It comprise 20 ‘value’ stocks from the NIFTY 50 (large cap stocks)

To pick these value stocks, metrics like ROCE, PE, PB and Dividend Yield are used.

So far, the factor index has done well (see table) 👇

NV20 has outperformed the NIFTY 50 index.

But what about fund managers doing active stock picking?

We compared NV20 with actively managed schemes in the value fund category.

And what did we find?

In the last 5 and 7 years, no active fund could beat the NV20 index.

Options to invest

First, let’s look at the NV20 index.

Four fund houses offer NV20 ETFs. These include @NipponIndiaMF, @KotakMF, @ICICIPruMF, @hdfcmf.

Only @NipponIndiaMF offers an index fund option at present.

The other option: BSE Enhanced Value index.

It picks 30 value stocks from large and mid-cap space.

And selects stocks based on P/B, P/E and sales-to-price ratios.

Currently, only @MotilalOswalAMC offers an ETF and an index fund based on this index (launched a few days back).

The performance of NV20 makes a strong case.

But it’s not guaranteed that it will perform consistently.

In fact, past data show that strategies like Value, Momentum, and Quality perform in different market conditions

See table.👇

Even calendar year returns show a similar trend.

Different factors or strategies have emerged as top-performing in different years.

As the performance of factors or strategies varies based on market conditions, keeping a combination of factors could help optimise returns.

For example, you can complement value with momentum.

Factor funds are at a nascent stage.

Until 2020, there were only eight of them.

NV20-based schemes were among the first factor funds launched by fund houses.

Therefore, you won’t find a long-term track record for these funds.

✅Understand the risks before you invest.

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