Factor Performance Across Different Macroeconomic Regimes in India · 2018. 12. 24. · Factor...
Transcript of Factor Performance Across Different Macroeconomic Regimes in India · 2018. 12. 24. · Factor...
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Factor Performance Across Different Macroeconomic Regimes in India
For Financial Professionals Only
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India's Active vs. Passive Debate and the Rise of Factors
Webinar
Tuesday, April 24, 2018
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Disclaimer
For Financial Professionals Only 3
S&P Dow Jones Indices emphasizes to participant that Anil Ghelani - DSP BlackRock
Mutual Fund & Shreenivas Kunte - CFA Institute are guest speaker and not affiliated with
S&P Dow Jones Indices or Asia Index Private Limited and that S&P Dow Jones Indices is
not providing endorsements as to the opinions expressed which are those of the guest
speaker for this webinar. S&P Dow Jones Indices offers no guarantees or warranties as to
the accuracy and reliability of opinions expressed.
Guest speaker are not affiliated with S&P Dow Jones Indices and S&P Dow Jones Indices
does not sponsor, endorse, sell, or promote any product based on an S&P Dow Jones index
nor does it make any representation regarding the advisability of investing in the products.
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ANIL GHELANI
4
Senior Vice President,
DSP BlackRock Mutual Fund
Anil has been working with DSP BlackRock Group since 2003 and is currently
responsible for Products & Passive Investments. Previously, he served as the Business
Head & Chief Investment Officer at DSP BlackRock Pension Fund Managers and prior to
that leading the Risk and Quantitative Analysis team at DSP BlackRock Mutual Fund
responsible for monitoring of portfolio risk and buy-side credit research on companies
across various sectors.
He also worked at IL&FS Asset Management Company and at S.R. Batliboi a member firm
of EY. He is currently serving in volunteer capacity as a Director of the India Society of
the CFA Institute.
For Financial Professionals Only
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AKASH JAIN
5
Associate Director, Global Research & Design
Asia Index Private Limited
Akash Jain is part of the Global Research & Design group at S&P Dow Jones Indices,
which is responsible for conceptualizing and developing new investable index-based
products across different asset classes. He represents S&P Dow Jones Indices at media
engagements, conferences, and other client events.
Akash is an integral part of Asia Index Private Limited, which is a partnership between
S&P Dow Jones Indices and BSE Limited (formerly Bombay Stock Exchange).
Akash joined S&P Dow Jones Indices in 2016. He has been in the financial markets for
more than six years, including at Deutsche, Credit Suisse, and Edelweiss, with
experience in both the buy side and the sell side. He has worked extensively in
researching, back-testing, and trading portfolios across different asset classes.
Akash attained his Bachelor of Technology (B.Tech) degree from Indian Institute of
Technology (IIT Bombay) and holds a Masters of Business Administration (MBA) from
Saïd Business School (University of Oxford).
For Financial Professionals Only
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SHREENIVAS KUNTE
6
Content Director,
CFA Institute
Shreenivas Kunte, CFA, is a director for continuing education and advocacy at CFA
Institute. In this role he provides thought leadership across a range of topics and through
different delivery platforms.
He also serves as an external research scholar at the Indian Institute of Technology
Bombay. Prior to joining CFA Institute, Shreenivas worked as the country trading
strategist for Citi. Shreenivas holds a degree in computer engineering from Veermata
Jijabai Technological Institute.
For Financial Professionals Only
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1. SPIVA® India Year-End 2017 Scorecard
2. Factor Investing
For Financial Professionals Only 7
Akash Jain
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ABOUT SPIVA® SCORECARD
SPIVA® AROUND THE WORLD
PERCENTAGE OF FUNDS OUTPERFORMED BY THE INDEX
01
02
03
04
05
EQUAL VS ASSET WEIGHTED RETURNS
TIMELINE OF PERCENTAGE OF ACTIVE FUNDS THAT
UNDERPERFORMED THEIR BENCHMARKS
SPIVA - TABLE OF CONTENTS
06 QUARTILE BREAKPOINTS
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THE SPIVA® (S&P INDICES VERSUS ACTIVE) INDIA SCORECARD
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Source: S&P Dow Jones Indices, LLC. It is not possible to invest directly in any index
What is SPIVA® India
- Bi-annual report that attempts to capture performance of active funds domiciled in Indiaagainst S&P BSE benchmark indices
- Acts as an objective score keeper in the active funds performance vs indices
- Aims to aid investors & better equip them to take informed decisions in the market
Geographies SPIVA published in
- India, US, Australia, Canada, Europe, Japan, South Africa, Mexico, Chile, and Brazil
Methodology
- Capture fund categories from an independent data source MorningStar & map these categories to S&P BSE Benchmark Indices
- Net assets data is obtained from AMFI database
Features
- Identifies % of active funds that survive the investment horizon and are style consistent
- Performance against benchmark indices over 1-, 3-, 5-, and10-Yr time horizons
- Equal vs asset weighted performance- Performance spread of 1st quartile funds vis’-
a-vis’ 3rd quartile
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INDIA SCORECARD –PERCENTAGE OF FUNDS OUTPERFORMED BY THE INDEX
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Source: S&P Dow Jones Indices, SPIVA India Scorecard Year End 2017,. Data as of Dec. 31, 2017, Data from Dec 31,2007up to Dec. 31, 2017. Index
performance based on total return [INR]. All data prior to launch date are back-tested. Charts are provided for illustrative purposes and may reflect
hypothetical historical performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Please see the
Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.
Indian Equity Large Cap vs. S&P BSE 100
Indian ELSS vs. S&P BSE 200
Indian Equity Mid/Small Cap vs. S&P BSE MidCap
Indian Government Bond vs. S&P BSE India Government Bond
Indian Composite Bond vs. S&P BSE India Bond
1-Year 3-Year 5-Year 10-YearFund Category Vs. Benchmark
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TIMELINE OF PERCENTAGE OF ACTIVE FUNDS THAT UNDERPERFORMED THEIR BENCHMARKS
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Source: S&P Dow Jones Indices LLC. Data as of June 30, 2017. Figures based on Mid-Year and Year-End SPIVA India scorecards since
December 2013 to June 2017. Past performance is no guarantee of future results. Reference:
https://www.indexologyblog.com/2017/10/10/timeline-of-percentage-of-active-funds-that-underperformed-their-benchmarks/
Percentage of active funds that underperformed their benchmarks (over a rolling 5-year investment horizon) In the LargeCap equity & two
bond fund categories, majority of active funds underperformed their respective benchmarks over a rolling 5-year investment horizon as can be seen in the exhibit
Equity Linked Saving Scheme (ELSS Tax Saving Funds) had the highest percentage of funds that beat the benchmark over the rolling 5-year period
Among all the fund categories, the Indian ELSS and Indian Equity Mid-/Small-Cap funds offered the most pronounced excess return over their respective benchmarks
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QUARTILE BREAKPOINTS
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Source: S&P Dow Jones Indices, SPIVA India Scorecard Year End 2017,. Data as of Dec. 31, 2017 Data from Dec
31,2007 up to Dec. 31, 2017. Index performance based on total return [INR]. All data prior to launch date are back-
tested. Charts are provided for illustrative purposes and may reflect hypothetical historical performance. It is not
possible to invest directly in an index. Past performance is no guarantee of future results. Please see the
Performance Disclosure at the end of this document for more information regarding the inherent limitations
associated with back-tested performance.
Over the 10-year period, thespread in returns between thebest quartile vs 3rd -best quartileby performance is significant incase of Indian Equities across allcategories.
The spread in Indian EquityLarge-Cap funds was 3.23%,Indian Equity Mid-/Small-Capfunds was 4.44% whereasIndian ELSS saw a difference of4.25%.
Selecting the right fund canprove to be a key factor forinvestors to achieve superiorportfolio returns
Return Spread of active funds over a 10-year investment horizon
3.2%
4.4%
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Source: S&P Dow Jones Indices, SPIVA India Scorecard Year End 2017,. Data as of Dec. 31, 2017, Data from Dec 31,2007 up to Dec. 31, 2017. Index
performance based on total return [INR]. All data prior to launch date are back-tested. Charts are provided for illustrative purposes and may reflect
hypothetical historical performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Please see the
Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.
SURVIVORSHIP & STYLE CONSISTENCY
SURVIVORSHIP BIAS CORRECTIONOver the 10-year period, Indian Equity Large-Cap funds showeda survivorship rate of 70.1%, whereas Indian Equity Mid-/Small-Cap funds had a 70.0% survivorship rate where-as theIndian Government Bond and Indian Composite Bond fundshad even lower survivorship rates, at 48.3% and 68.2%,respectively.
STYLE CONSISTENCYOver the 10-year period, style consistency was fairly low forIndian Equity Large-Cap funds (28.3%) and Indian EquityMid-/Small-Cap funds (30.0%). On the other hand, Indian ELSSfunds have largely been style consistent.
Category
Indian Composite Bond
Indian Government Bond
Indian Equity Mid/Small Cap
Indian ELSS
Indian Equity Large Cap
Style consistency within the survivorship bias
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EQUAL VS ASSET WEIGHTED RETURNS
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Source: S&P Dow Jones Indices, SPIVA India Scorecard Year End 2017,. Data as of Dec. 31, 2017, Data from Dec 31,2007 up to Dec. 31, 2017. Index
performance based on total return [INR]. All data prior to launch date are back-tested. Charts are provided for illustrative purposes and may reflect
hypothetical historical performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Please see the
Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.
10
-Ye
ar
1-Y
ea
r
EQUAL WEIGHTED RETURN
EXCESS ASSET WEIGHTED RETURNS
BENCHMARK RETURNS
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KEY TAKEAWAYS AND OPPORTUNITIES FOR INVESTING VIA PASSIVE INSTRUMENTS
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Source: S&P Dow Jones Indices, Past performances is not a guarantee of future results. It is not possible to directly invest in any index
1. Notable trend in convergence in excess performance and fees
2. Factor in Survivorship Correction and Style Consistency
3. Funds with higher AUM’s have historically performed better than their peers over
longer time horizon
4. Investors may see wide spread in returns even when investing within the same
category of funds
5. Passive instruments are designed to offer exposure to capital markets via systematic,
transparent and as a low-cost alternative
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FACTOR INVESTING 101
EVOLUTION OF FACTOR INVESTING
01
02
03
04
RISK/RETURN CHARACTERISTICS OF SINGLE FACTORS
HOW DO SINGLE FACTORS PERFORM IN DIFFERENT
MARKET REGIMES IN INDIA?
TABLE OF CONTENTS
05 CORRELATION BETWEEN SINGLE FACTORS
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Source: “Premia Partners https://www.premia-partners.com/what-is-smart-beta/”
Chart is provided for illustrative purposes.
FACTOR INVESTING 101
• A factor can be thought of as an element that helps to explain the risk/return characteristics of aportfolio. The broadly recognized factors are size, dividend, volatility, momentum, quality, andvalue.
• Factor investing seeks to identify and capture broad, persistent drivers of return
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EVOLUTION OF FACTOR INVESTING
Source: Fidelity Investments. # https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/brokerage/overview-factor-investing.pdfChart is provided for illustrative purposes.
• Passive products enable market participants to implement their active views through transparentand cost-effective manner.
• For eg. Investors seeking to gain exposure to inexpensive companies can add value ETF’s to theirportfolio. Similarly, investors looking to invest in companies with strong balance sheet & highROE can gain exposure to quality ETF’s
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The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices LLC. Data from October 2005 to June 2017. Index performance
based on total return in INR. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance. Please see the
Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance. Note: Data points below each factor represent
risk-adjusted return.
Risk/Return Characteristics and Risk-Adjusted Returns of Single-Factor Indices and
Portfolios (October 2005 – June 2017)
RISK/RETURN CHARACTERISTICS OF SINGLE FACTORS
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HOW DO SINGLE FACTORS PERFORM IN DIFFERENT MARKET REGIMES IN INDIA? (1)
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Best-performing Factors in each ‘market cycle’ phase
Best-performing Factors in each ‘business cycle’ phase
Source: S&P Dow Jones Indices LLC. Data from October 2005 to June 2017. The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Top 3 factors by performance in each period are shown in the chart. Index performance based on total return in INR. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure in the report for more information regarding the inherent limitations associated with back-tested performance. See Appendix A in the report for the OECD Composite Indicator business cycles. See Appendix B in the report to note the classification of the time horizon into three market cycles, namely—bull, bear, and recovery phases
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Source: S&P Dow Jones Indices LLC. Data from October 2005 to June 2017. Index performance based on total return in INR. Past performance is no guarantee of future
results. Table is provided for illustrative purposes. Note: Yellow, upward triangles represent favorable performance (positive excess return with outperformance probability not
lower than 50%), while blue, downward triangles represent unfavorable performance (negative excess return with outperformance probability not higher than 50%) versus the
S&P BSE LargeMidCap. The two factors with the highest information ratio in each of the market cycle phases are circled.
HOW DO SINGLE FACTORS PERFORM IN DIFFERENT MARKET REGIMES IN INDIA? (2)
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Source: S&P Dow Jones Indices LLC. Data from October 2005 to June 2017. The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Correlation
calculated using excess price returns over S&P BSE LargeMidCap. Index performance based on price return in INR. Past performance is no guarantee of future results. Table is provided for
illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure in the report for more information regarding the inherent limitations associated
with back-tested performance.
EVOLVING FROM SINGLE-FACTOR TO MULTIFACTOR INVESTING
• Blending factors to form multifactor portfolios may potentially help to deliver smootherexcess return across business and market cycles
• Bucket factors into cyclical and defensive factors
• Correlation among factors is a common consideration in the construction of multifactorportfolios.
Correlation Matrix
of Factor vs S&P BSE
LargeMidCap
Value Momentum Quality Low-Vol Dividend Size
Value (32%) (29%) (45%) 85% 80%
Momentum (32%) 28% 25% (31%) (29%)
Quality (29%) 28% 75% (9%) (19%)
Low-Vol (45%) 25% 75% (24%) (34%)
Dividend 85% (31%) (9%) (24%) 78%
Size 80% (29%) (19%) (34%) 78%
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SUMMARY - FACTOR INVESTING
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Source: S&P Dow Jones Indices, Past performances is not a guarantee of future results. It is not possible to directly invest in any index
1. Low Volatility & Quality were the best performing factors in the Indian context
2. Factors tended to exhibit cyclicality with periods of out-/under- performance
3. Value, dividend & size displayed pro-cyclical characteristics whereas low-volatility
and quality showed defensive characteristics
4. Factor can act as potential tools to implement active views
5. Blending factors in a portfolio to diversify factor exposure may help deliver smoother
excess return across market cycles
6. Correlation plays an important consideration when combining factors
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For Financial Professionals Only 25
Thank you
Akash Jain
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PERFORMANCE DISCLOSURE
26
Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results. These charts and graphs may reflect hypothetical
historical performance. All information presented prior to the launch date is back-tested. Back-tested performance is not actual performance, but is hypothetical.
The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, it should be noted that the
historic calculations of an Economic Index may change from month to month based on revisions to the underlying economic data used in the calculation of the
index. Complete index methodology details are available at www.spdji.com and www.asiaindex.co.in. It is not possible to invest directly in an index.
AIPL defines various dates to assist our clients in providing transparency on their products. The First Value Date is the first day for which there is a calculated
value (either live or back-tested) for a given index. The Base Date is the date at which the Index is set at a fixed value for calculation purposes. The Launch Date
designates the date upon which the values of an index are first considered live: index values provided for any date or time period prior to the index’s Launch Date
are considered back-tested. AIPL defines the Launch Date as the date by which the values of an index are known to have been released to the public, for example
via the company’s public website or its data feed to external parties.
Past performance of the Index is not an indication of future results. Prospective application of the methodology used to construct the Index may not result in
performance commensurate with the back-test returns shown. The back-test period does not necessarily correspond to the entire available history of the Index.
Please refer to the methodology paper for the Index, available at www.spdji.com and www.asiaindex.co.in for more details about the index, including the manner in
which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations.
Another limitation of using back-tested information is that the back-tested calculation is generally prepared with the benefit of hindsight. Back-tested information
reflects the application of the index methodology and selection of index constituents in hindsight. No hypothetical record can completely account for the impact of
financial risk in actual trading. For example, there are numerous factors related to the equities, fixed income, or commodities markets in general which cannot be,
and have not been accounted for in the preparation of the index information set forth, all of which can affect actual performance.
Index returns shown do not represent the results of actual trading of investable assets/securities. AIPL or its agent maintains the S&P BSE Indices and calculates
the Index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an
investor may pay to purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of
these fees and charges would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. As a simple
example, if an index returned 10% on a US $100,000 investment for a 12-month period (or US $10,000) and an actual asset-based fee of 1.5% was imposed at
the end of the period on the investment plus accrued interest (or US $1,650), the net return would be 8.35% (or US $8,350) for the year. Over a three year period,
an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.10%, a total fee of US $5,375, and a
cumulative net return of 27.2% (or US $27,200).
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GENERAL DISCLAIMER
27
© Asia Index Private Limited 2018. All rights reserved.
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NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
The matter contained in this material is based on the personal views of the author. No person or
entity, including the employer of the author, is in any way responsible for any matter contained in this
material.
This material is not, and should not be construed as, an offer or solicitation for purchase or
sale of mutual fund units or any other securities.
Rise of Factor Investing
Anil Ghelani, CFAHead of Passive Investments & Products - DSP BlackRock
S&P BSE Indices WebinarApril 24, 2018
Passive Investments Landscape - Globally
29
Source: BlackRock, Internal
First ETF launched in 1993; today close to $ 5 trillion AUM
Recent rise of Smart Beta:
Assets invested in Smart Beta ETFs listed globally touched $ 1 trillion AUM
- also referred to as Strategic Beta or Factor ETFs
NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
Passive Investments Landscape - India
30
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Index Fund AUM
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
ETF AUM
Mar-18 Dec-17 Dec-16 Dec-15 Dec-14 Dec-13
Index Funds 3,161 3,150 2,140 2,123 1,770 753S&P BSE
Sensex & Nifty
ETFs52,764 48,178 19,381 6,022 1,020 425
Banking ETF 6,575 7,481 4,134 1,797 1,452 47Fixed Income
ETF1,977 1,783 1,693 925 872 711
Gold ETF 4,852 4,904 5,414 4,419 5,439 6,389
Government ETF 10,724 13,733 2,284 2,081 2,478 0
Others 747 704 407 189 164 79
TOTAL 80,800 79,933 35,454 17,557 13,195 8,405
Source – MFIE. All figures are in INR Crore
NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
Drivers of Smart Beta
31
RETURN
ENHANCEMENT
IMPROVED
DIVERSIFICATION
RISK
REDUCTION
SMART BETA
Cost Saving
Transparency
Convenience
NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
Benefits for different investors
32
One stop solution to the various needs of investors
Ind
ivid
ua
l In
ve
sto
rs
• Diversification of portfolio resulting in reduction of stock specific risk at low cost.
• Allows customization in investor’s portfolio consistent with their financial needs, risk tolerance & investment horizon.
FP
Is, In
sti
tuti
on
s ,P
F, In
su
ran
ce • Allows easy &
convenient asset allocation to broad segments of equity markets.
• Excellenthedging and liquidity management vehicle.
• Cash equitisation at low cost.
Alg
oT
rad
ers
; A
rbit
rag
eu
rs
• Low impact cost to carry out arbitrage between the cash & futures market.
• Can be used to cover option strategies on the Index.
• Liquid ETFs can be used for parking cash in between trades
NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
Factor Investing - Single Factor & Multi-factor Indices
33
21.4 lakh Cr 0.8 lakh Cr0.01
lakh Cr
MUTUAL FUND INDUSTRY AUM PASSIVE AUM FACTOR-BASED AUM
Source – MFIE, CAMS. Data as on March, 2018
NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
Passive Investments - Complementary Strategy for Investments
34
CORE ALLOCATION
Provides market
participation
No fund manager bias
Useful specially in the large
cap segment
SATELLITE ALLOCATION
There is a potential to
generate alpha
Changing trends, especially
in the large cap segment
Actively manage
d Satellite
Passively
managed Core
NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
Disclaimers
In this material author has used information that is publicly available and Information gathered and used in this material is believed to be from
reliable sources. The author however does not warrant the accuracy, reasonableness and/or completeness of any information. The data/statistics
are given to explain general market trends in the securities market; it should not be construed as any research report / research recommendation.
This is a generic update on passive funds. it has included statements /opinions / recommendations in this document, which contain words, or
phrases such as ”will”, ”expect”, ”should”, ”believe” and similar expressions or variations of such expressions that are ”forward looking statements”.
Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our
expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries
globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated
turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. All figures and other data given in this document are
dated and the same may or may not be relevant in future.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
36NOT FOR MASS CIRCULATION - FOR DISCUSSIONS WITH INTENDED RECEIPIENTS ONLY
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APPENDIX - SPIVA® SCORECARD
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PERFORMANCE OF ACTIVE-FUNDS IN DIFFERENT MARKET REGIMES –LARGE CAP EQUITY
38
BULL PHASE
BEARPHASE
RECOVERY PHASE
BULL PHASE
BEAR PHASE RECOVERY PHASE
BULL PHASE BEAR PHASE
RECOVERYPHASES
0
50
100
150
200
250
300Equi-Wtd Indian Equity Large Cap Asset-Wtd Indian Equity Large Cap S&P BSE 100
Market CycleIndian Equity
Large Cap
Funds Beta (against S&P BSE 100)
BULL 0.95
BEAR 0.89
RECOVERY 0.89
Excess Returns over S&P BSE 100 (Equal-Weighted), Annualized %
BULL (0.0)
BEAR 0.4
RECOVERY (3.0)
Excess Returns over S&P BSE 100 (Asset-Weighted), Annualized %
BULL (0.2)
BEAR 0.8
RECOVERY (1.6)
Source: S&P Dow Jones Indices. Data as of Dec. 31, 2016, Data from Dec 31,2006 up to Dec. 31, 2016. Index performance based on total return [INR]. All data prior to launch date are
back-tested. Charts are provided for illustrative purposes and may reflect hypothetical historical performance. It is not possible to invest directly in an index. Past performance is no
guarantee of future results. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested
performance.
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PERFORMANCE OF ACTIVE-FUNDS IN DIFFERENT MARKET REGIMES –MID/SMALL CAP EQUITY
39
Source: S&P Dow Jones Indices. Data as of Dec. 31, 2016, Data from Dec 31,2006 up to Dec. 31, 2016. Index performance based on total return [INR]. All
data prior to launch date are back-tested. Charts are provided for illustrative purposes and may reflect hypothetical historical performance. It is not
possible to invest directly in an index. Past performance is no guarantee of future results. Please see the Performance Disclosure at the end of this
document for more information regarding the inherent limitations associated with back-tested performance.
BEAR PHASE BULL PHASE
BEAR PHASE RECOVERY PHASE
BEAR PHASE
BULL PHASE
RECOVERY PHASE
BULL PHASE RECOVERYPHASE
0
50
100
150
200
250
300
350
400Equi-Wtd Indian Equity Mid/Small Cap Asset-Wtd Indian Equity Mid/Small Cap S&P BSE MidCap
Market CycleIndian Equity
Mid/Small Cap
Funds Beta (against S&P BSE MidCap)
BULL 0.84
BEAR 0.82
RECOVERY 0.79
Excess Returns over S&P BSE MidCap(Equal-Weighted), Annualized
BULL 2.0
BEAR 6.7
RECOVERY (6.3)
Excess Returns over S&P BSE MidCap(Asset-Weighted), Annualized
BULL 2.3
BEAR 8.4
RECOVERY (5.9)
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APPENDIX A: PERCENTAGE OF FUNDS OUTPERFORMED BY THE INDEX
40
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2016. Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Year-End 2017
Year-End 2016
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APPENDIX B1: SURVIVORSHIP AND STYLE CONSISTENCY OF INDIAN EQUITY FUNDS
41
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2017 Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Year-End 2017
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APPENDIX B2: SURVIVORSHIP AND STYLE CONSISTENCY OF INDIAN EQUITY FUNDS
42
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2016. Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Year-End 2016
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APPENDIX C1: AVERAGE FUND PERFORMANCE
43
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2017 Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Average Fund Performance (Equal Weighted)
Average Fund Performance (Asset Weighted)
Year-End 2017
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APPENDIX C2: AVERAGE FUND PERFORMANCE
44
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2016. Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Average Fund Performance (Equal Weighted)
Average Fund Performance (Asset Weighted)
Year-End 2016
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APPENDIX D1: QUARTILE BREAKPOINTS OF FUND PERFORMANCE
45
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2017. Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Year-End 2017
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APPENDIX D2: QUARTILE BREAKPOINTS OF FUND PERFORMANCE
46
Source: S&P Dow Jones Indices LLC, Morningstar, and Association of Mutual Funds in India. Data as of Dec. 31, 2016. Returns are shown in INR. Past
performance is no guarantee of future results. Table is provided for illustrative purposes.
Year-End 2016
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For financial professionals. Not for public distribution. PROPRIETARY. Permission for distribute or reprint or distribute any content from this presentation requires the required
permission of S&P Dow Jones Indices.
Source: Asia Index Private Limited; For more details please log on to www.asiaindex.co.in; as of July 31, 2016
47
S&P BSE India Bond Index
S&P BSE India Government Bond
Index
S&P BSE India 10 Year Sovereign Bond Index
S&P BSE India Sovereign Bond Index
S&P BSE India Government Bill Index
S&P BSE India Agency Bond Index
S&P BSE India Provincial Bond Index
S&P BSE India Corporate Bond
Index
S&P BSE India Financials Bond Index
S&P BSE India Services Bond Index
S&P BSE India Utilities Bond Index
S&P BSE India Industrials Bond Index
Money market Index S&P BSE Liquid Rate Index
Bond indices
APPENDIX E1: S&P BSE FIXED INCOME INDICES
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APPENDIX – FACTOR INVESTING
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FACTOR INDICES V/S MARKET-CAP-WEIGHTED INDICES?
49
MARKET-CAP-WEIGHTED/ BROAD-BASED INDICES
FACTOR INDICES
Represents the entire investable opportunity set for market participants
Portfolio constituent selection based on specific factor criterion and aims to reflect an investors active views. (Not designed to replace market-cap-weighted indices )
Aims to capture long-term equity risk premium Targeted exposure to specific risk-factors
Generally have low portfolio turnover, high trading liquidity, and large investment capacity.
Generally have relatively higher turnover. There is a tradeoff between investibility and factor strength
Generally well diversified portfolios Factor portfolios such as value and low volatility can be significantly biased towards few sectors
Most common weighing method is based on float market capitalization
Weights are usually in relation to the stocks’ factor scores, which are used to create factor tilts within the index portfolios
Broad market indices are viewed as a barometer of the state of the overall market & economy
Performance of factor portfolios, like active funds, should be evaluated in the long run against a market-cap-weighted benchmark
S&P BSE 500S&P BSE 100S&P BSE LargeMidCap
S&P BSE Enhanced Value IndexS&P BSE Quality Index S&P BSE Low Volatility Index
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The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices LLC. Data from
March 2006 to March 2017. Figures in the table are average figures for the semiannually rebalanced portfolios. Past performance is no guarantee of
future results. Table is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at
the end of this document for more information regarding the inherent limitations associated with back-tested performance.
FACTOR PORTFOLIOS SECTOR BIAS VERSUS THE S&P BSE LARGEMIDCAP
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The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices LLC. Data from
March 2006 to March 2017. Figures in the table are average figures for the semiannually rebalanced portfolios. Past performance is no guarantee of
future results. Table is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at
the end of this document for more information regarding the inherent limitations associated with back-tested performance.
FACTOR PERFORMANCE IN EACH BUSINESS CYCLE PHASE
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The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices LLC. Data from
March 2006 to March 2017. Figures in the table are average figures for the semiannually rebalanced portfolios. Past performance is no guarantee of
future results. Table is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at
the end of this document for more information regarding the inherent limitations associated with back-tested performance.
FACTOR PERFORMANCE IN EACH MARKET CYCLE PHASE
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The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices LLC. Data from
March 2006 to March 2017. Figures in the table are average figures for the semiannually rebalanced portfolios. Past performance is no guarantee of
future results. Table is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at
the end of this document for more information regarding the inherent limitations associated with back-tested performance.
FACTOR PERFORMANCE IN DIFFERENT INVESTOR SENTIMENT REGIMES
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The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices LLC. Data from
Sep. 2005 to Apr. 2016. Figures in the table are average figures for the semiannually rebalanced portfolios. Past performance is no guarantee of future
results. Table is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at the end
of this document for more information regarding the inherent limitations associated with back-tested performance.
UP/DOWN MARKET ANALYSIS
Low Volatility
Quality
Momentum
Value
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For Financial Professionals Only 55
1. Cash Equitization (eg. if a fund witnesses solid AUM growth, the fund manager may
require a couple of days to deploy. To avoid cash drag or underperforming the
benchmark, they can temporarily park some of the cash amount in an ETF that offers
similar style exposure and target risk)
2. Portfolio diversification
3. Tactical adjustments to portfolios
4. Core-satellite investment approach (investors can add ETF’s to express their short
term tactical views eg. If an investor expects a short term speed block in a long term bull
market, due to policy decision raising government bond yields, than rather than shifting
entire portfolio, one can quickly implement a tilt towards quality via a factor ETF)
5. Hedging (Inverse ETFs, leveraged ETFs, and currency ETFs can be used to hedge the
broad portfolios )
HOW INSTITUTIONS ARE USING SMART BETA ?
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For Financial Professionals Only 56
Exhibit: Overview of the S&P BSE Single-Factor Indices and Hypothetical Portfolios
FACTOR INDEX DESCRIPTION
Low VolatilityS&P BSE Low
Volatility Index
The 30 least volatile companies from the S&P BSE LargeMidCap, weighted by
inverse proportion to their volatility and subject to a stock capping of 5%.
Volatility is defined as the standard deviation of a security’s daily price return over
the one-year period.
MomentumS&P BSE Momentum
Index
The 30 companies from the S&P BSE LargeMidCap with the highest momentum
scores. Constituents are weighted by the product of momentum score and float-
adjusted market capitalization (FMC) and subject to stock capping of a minimum
of 5% or three times the FMC weight in the eligible index universe. Momentum
score is computed as 12-month price change, excluding the most recent month,
divided by standard deviation of price return for the same period.
ValueS&P BSE Enhanced
Value Index
The 30 companies from the S&P BSE LargeMidCap with the highest value
scores, weighted by the product of value score and FMC and subject to sector
capping of 30% and stock capping of a minimum of 5% or 20 times the FMC
weight in the eligible index universe. Value score is calculated based on book-to-
price, earnings-to-price, and sales-to-price ratios.
QualityS&P BSE Quality
Index
The 30 companies from the S&P BSE LargeMidCap with the highest quality
scores, weighted by the product of quality score and FMC and subject to sector
capping of 30% and stock capping of a minimum of 5% or 20 times the FMC
weight in the eligible index universe. Quality score is calculated based on return
on equity, accruals ratio, and financial leverage ratio.
DividendS&P BSE Dividend
Portfolio
The 30 companies from S&P BSE LargeMidCap with the highest dividend yield,
weighted in relative proportions to their dividend yields subject to sector capping
of 30% and stock capping of 5%.
SizeS&P BSE Equal-
Weighted Portfolio
All constituents from S&P BSE LargeMidCap weighted equally constitute the
portfolio.
INDEX METHODOLOGIES
The S&P BSE Dividend Portfolio and S&P BSE Equal-Weighted Portfolio are hypothetical portfolios. Source: S&P Dow Jones Indices
LLC. Past performance is no guarantee of future results. Table is provided for illustrative purposes and reflects hypothetical historical
performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations
associated with back-tested performance.
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57
GROWTH IN AUM OF MARKET CAP BETA VERSUS SMART BETA PASSIVE PRODUCTS
Source: “ETFGI. https://www.researchpool.com/download/?report_id=1570482&show_pdf_data=true“Chart is provided for illustrative purposes.
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