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.
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.
