Nifty Alpha Low-Volatility 30 Index

Factor-based investing, where stocks are selected based on style factors such as size, alpha, quality, value, momentum and low volatility, remains popular globally and continues to see rising interest in India as well.

Factor-based index strategies combine the benefits of both active and passive investment styles by applying well established stock-specific factors used in active investment, and the rules-based framework of passive investment.

Factor Indices India

One such multi-factor index is Nifty Alpha Low-Volatility 30 index, which is a multi-factor index based on 2 factors – Alpha and Low Volatility. The Index tracks performance of 30 stocks, selected from a universe of 150 Large and Mid cap stocks, that have recently outperformed the broader market yet are relatively less volatile. 

Highlights:

  • The index has 30 constituents, with a base date of April 01, 2005, and a base value of 1000.
  • The index is re-balanced semi-annually in June and December.
  • The index tracks the performance of 30 stocks with High Alpha and Low Volatility. These stocks are selected from the Nifty 100 Index and Nifty Mid cap 50 Index.
  • Stocks are selected based on their weighted average percentile score determined using an equal weighted combination of each stock’s Alpha and Volatility score.
  • The weight of each stock in the index is based on an equal weighted combination of its Alpha and Volatility score.
  • Stock weights are capped at the lower of 5% or 5 times the weight of the stock in the index based only on free float market capitalization.
Performance:

Nifty Alpha Low-Volatility 30 Index, Nifty 100 Index and Nifty Midcap 50 Index performance table

Nifty Alpha Low-Volatility 30 Index


The Nifty Alpha Low-Volatility 30 Index has outperformed the Nifty 100 Index and Nifty Midcap 50 Index since inception (2005), with an 19.0% CAGR return against 13.2% CAGR return for the Nifty 100 Index and 9.9% CAGR return for the Nifty Midcap 50 Index.

The Nifty Alpha Low-Volatility 30 Index adjusts to changing market conditions and increases the weight to current outperforming stocks which also have relatively low volatility.

Summary:
Smart Beta based passive investment styles are increasingly being used by investors across the globe as building blocks in their asset allocation models in their eternal quest to generate market beating returns.

The Nifty Alpha Low-Volatility 30 Index adjusts to changing market conditions and increases the weight to current outperforming stocks which also have relatively low volatility. 

We are yet to have an Index Fund for this index, but we have an ETF from Pru ICICI. 
Know more about Factor Indices and another factor index - Nifty 200 Momentum 30 Index.