An In-depth Analysis of the Nifty Mid Smallcap 400 Momentum Quality 100 Index in Mutual Funds
Mid and small-cap schemes have consistently demonstrated impressive performance in the past, showcasing their potential for substantial returns. However, one index has emerged as a standout performer, outpacing 80% of its peers and even surpassing other indices. We are discussing Mirae Asset's innovative factor fund, the Nifty MidSmallcap400 Momentum Quality 100 index. Should this index be a part of your mutual fund investment portfolio? Let's delve into its unique features and performance.
Unique Build of the Nifty MidSmallcap400 Momentum Quality 100 Index
This fund operates much like a typical mid and small-cap fund but with a unique twist. It tracks an index that carefully selects 100 stocks from a pool of 400, comprising 150 mid-cap and 250 small-cap firms. Each stock is evaluated based on two key criteria: momentum and quality. The momentum factor identifies stocks with recent strong performance, while the quality factor emphasizes companies with better profitability, stability, and lower financial leverage.
By combining these scores, the index selects the top 100 stocks and determines their weights. Moreover, the index is reviewed every six months to ensure its continued relevance. This dynamic approach ensures that the portfolio remains up-to-date and responsive to market changes.
Performance Against Other Indices
Since its launch in February 2024, the Nifty MidSmallcap400 Momentum Quality 100 index has shown superior returns, even when back-tested data is considered. Its volatility is moderate, falling between that of large-cap and mid-cap indices, making it less volatile than the Nifty Smallcap 250.
One of its standout features is the highest return-to-risk ratio among various indices, indicating a positive outlook for potential investors. This balanced risk and reward proposition makes it an attractive option for those seeking a conservative yet potentially high-performing investment.
Performance Against Active Mutual Funds
Compared to mid-cap schemes, the Nifty MidSmallcap400 Momentum Quality 100 index has outperformed more than 80 active mid-cap funds over the 1-5 year timeframe. This outperformance extends even further back, with remarkable records over the last 7 or 10 years. However, in the medium term (3-5 years), most active small-cap funds have outperformed this index.
Against small-cap schemes, the index has performed better in both the short term (last 1 year) and the long term (over 7 years). However, active small-cap funds have shown consistent outperformance in the medium to long term (3-5 years).
Performance Against a Similar Factor Fund
Mirae Asset also offers a similar factor fund based on the Nifty Smallcap 250 Momentum Quality 100 index. The key difference lies in the universe of stocks selected. The MidSmallcap400 index chooses from a pool of 400 stocks (150 mid-cap and 250 small-cap), while the Smallcap 250 index selects from just 250 small-cap stocks. Despite this difference, their performance has been relatively similar.
Both indices have 18 years of available data. The MidSmallcap400 Quality Momentum Index has taken the lead in 10 years, while the Smallcap 250 Momentum Quality 100 Index has outperformed in 8 years. Various performance metrics, such as rolling returns and volatility, indicate a close competition between the two.
Conclusion
Mirae Asset's new ETF based on the Nifty MidSmallcap400 Momentum Quality 100 index is unique but still new and untested across different market cycles. While it is essential to wait and see how it performs, you could consider adding it to your satellite portfolio and starting with a small Systematic Investment Plan (SIP) if it appears promising. Nevertheless, always carefully consider the risks and volatility before making any investment decisions.
By thoroughly understanding the nuances of this index, you can better assess its potential as a part of your investment strategy. For further insights and to stay updated on market trends, follow us on ET Money.