Smart-beta funds, particularly those focused on strategies like the Nifty100 Low Volatility 30 Index, aim to provide a factor-based approach to investing that goes beyond traditional market capitalization-weighted indices.
Here are a few key points to consider:
- Reducing Volatility: The primary objective of smart-beta funds focused on low volatility is to reduce the overall portfolio volatility. This can be appealing to investors who are seeking a more stable investment, particularly during turbulent market conditions.
- Diversification: Diversified funds, as you mentioned, may also include exposure to stocks that exhibit low volatility. However, smart-beta funds focused on low volatility take a more systematic approach, using quantitative models to select stocks based on historical volatility metrics.
- Market Timing and Corrections: While the aim is to reduce volatility, it’s important to note that no investment strategy can predict or completely shield investors from market corrections. Even stocks with historically low volatility can experience periods of increased volatility, and market conditions can change.
- Factor Investing: Smart-beta funds are part of the broader trend of factor investing, where investors seek exposure to specific factors (such as low volatility, value, momentum) believed to drive returns. Factor investing comes with its own set of risks and considerations, and investors should understand the factors employed by these funds.
Before investing in any fund, including smart-beta funds, investors should carefully review the fund’s objectives, strategy, historical performance, and associated fees. It’s also advisable to consider how the fund fits into an overall investment portfolio and whether it aligns with the investor’s risk tolerance and financial goals. Here are the top 10 stocks within the basket of the Nifty100 Low Volatility 30 Index and a look at how many diversified funds hold them
Sun Pharmaceutical Industries
Sector: Pharmaceuticals
Active equity schemes that held the stock: 266
ICICI Bank
Sector: Banks
Active equity schemes that held the stock: 407
Nestle India
Sector: Food Products
Active equity schemes that held the stock: 120
Hindustan Unilever
Sector: FMCG
Active equity schemes that held the stock: 225
Kotak Mahindra Bank
Sector: Banks
Active equity schemes that held the stock: 183
Dr. Reddy’s Laboratories
Sector: Pharmaceuticals
Active equity schemes that held the stock: 104
Larsen & Toubro
Sector: Construction Project
Active equity schemes that held the stock: 317
HDFC Bank
Sector: Banks
Active equity schemes that held the stock: 420
Indian Oil Corporation
Sector: Petroleum Products
Active equity schemes that held the stock: 24
ITC
Sector: FMCG
Active equity schemes that held the stock: 23
