Depolarization has Begun - First Big Pause since 2018
It is often seen that Indian markets follow trends observed in the US. We can see that “Depolarisation” has started in the US Markets- top 50 stocks in the S&P 500 Index were increasing since 2015. However, a recent reversal indicates initial signs of depolarization in the US markets.
Similarly a depolarisation trend is visible in India –bottom-30 stocks in the Nifty 50 index have broken-out of a downtrend, which was going on since 2018.
Magic Formula for Wealth Creation - An Equal-Weighted Index
In a tense cricket match, while defending a low total, a calm captain will show faith in the bowler, motivate the fielders & expect equal effort from all players.
It is not about just the ‘heavyweight’ stars, but all players need to perform equally and work hard to try to win the match.
In investing, an index fund using a similar ‘equal effort (weight) strategy’ can deliver similar outcomes.
Simple yet Powerful – Nifty 50 Equal Weight Index Research Paper (Feb 2021)
In this research paper we will see how Nifty 50 Equal Weight Index has performed vs Nifty50 over different time horizons.
We will dig into the reasons behind the performance and also look at the advantages & disadvantages of the Equal Weight strategy.
Peak Polarisation in Large Caps - Start of Mean Reversion?
Nifty 50 index consists of ‘good’ companies that are leaders in their sectors, large in size and have better chances of riding through business cycles.
Stock weights in Nifty 50 are heavily tilted to businesses with higher market capitalization- which effectively means betting more on larger companies.
But who led the rally post polarization in Index heavyweights? Will history repeat?
In times of crises, can the same 50 stocks help fetch better returns with a slight twist in weights?
What is an Equal Weighted Index & how do you invest in it?
We speak of the Nifty and the Sensex and the Dow Jones Indexes, but what are they?
A stock market index is a “barometer” of the market - a set of stocks that, when put together, give you a better understanding of how the market as a whole is moving. In other words, an Index is a way to get an insight on how the overall market is performing....
The Performance of an Equal Weighted Nifty Index
In April 2017, India Index Services & Products – who maintains Indices at the NSE, launched the Nifty 50 Equal Weighted Index. The Index has the same stocks as of Nifty 50. But all stocks in the Index carry equal weights rather than being market-cap based.
Stocks will move every day, so the index is rebalanced every three months to bring everything back to equal weights...
Understanding the risk of an Equal Weighted Index
Since the Index comprises the same set of stocks that are part of Nifty 50, there isn’t too much of a difference between risk profiles of Equal Weighted versus the Market Cap Weighted Index.
The correlation of weekly returns is nearly 96%.
A significant change between Market Cap Weighted Nifty 50 and Equal Weight Nifty 50 is the total free float market capitalization…
Will an Equal Weighted Index outperform other funds?
WIn 1976, when the first Index fund was created by The Vanguard Group, it was referred to as “Bogle’s Folly”. After all, who would rather not pay a higher expense ratio for the ability to beat the markets that Mutual Funds promised versus just performing in line with the markets as the Index funds promised
40 Years later, the stand of Vanguard founder, John C. Bogle has been vindicated like never before..