Can momentum-based index fund boost your portfolio returns?
UTI Mutual Fund has recently filed a draft prospectus to launch UTI Momentum Index Fund, which would be a passive investment offering from UTI Asset Management Company (AMC).
UTI Momentum Index Fund would track the Nifty 200 Momentum 30 Index. In fact, this index itself was launched recently on August 25, 2020, while its base date is April 1, 2005. Momentum investing works better in the bull-run and gets smashed in the bear phase.
Asset Allocation
|
Types of Instruments
|
Asset Allocation (per cent of Net Assets)
|
Risk Profile
|
|
Maximum
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Minimum
|
|
Securities covered by Nifty 200 Momentum 30 Index
|
100
|
95
|
Medium to High
|
|
Debt/Cash/Money Market instruments including Triparty Repo and units of Liquid Mutual Fund
|
5
|
0
|
Low
|
Top constituents
Below is a list of the top constituents that form part of the Nifty 200 Momentum 30 Index as of August 31, 2020.
|
Name of the Company
|
Weight (per cent)
|
|
Divi's Laboratories Ltd
|
6.27
|
|
Tata Consumer Products Ltd
|
6.03
|
|
Reliance Industries Ltd
|
5.67
|
|
Asian Paints Ltd
|
5.26
|
|
Cipla Ltd
|
5.26
|
|
Britannia Industries Ltd
|
5.06
|
|
Dr Reddy's Laboratories Ltd
|
4.98
|
|
Hindustan Unilever Ltd
|
4.56
|
|
Nestle India Ltd
|
4.45
|
|
Bharti Airtel Ltd
|
4.30
|
Note: Nifty 200 Momentum 30 Index is re-balanced every six months.
As we can see, when the market falls as witnessed in the year 2008 and March 2020, it faced a deep cut. However, during a rising market, this index performs really well. Such a high variance calls for a higher standard deviation. This means that investing in such a strategy is risky as there is no downside protection. Therefore, momentum investing would be much-suited for aggressive risk-takers. For rest, it is better to combine momentum and low volatility investment strategy. A low volatility investment strategy would help you protect the downside volatility.