Lazy Investing: Five Test Stock Portfolios -July 2018 Update

Readers may be aware that from June 2018, I have started testing five stock portfolios based on NSE indices.  Their current status is reported in this post. Three of them are based on smart beta (active + passive) indices and two on a passive index.  The main aim is to find out (after the lapse of a few years) how effective a lazy investing stock picking strategy is.

There are two important warnings.

I have no skin in the game. These are purely imaginary portfolios created at Value Research. I have nothing to lose here. If the portfolios work, I will write a post about it. If they fail, I will write a post about it.

These are NOT stock recommendations. They are experimental portfolios and I am running a test. I invite you to study them with me. Do not put your money based on these posts alone. Please carry out due diligence.   

Readers may be aware that I have been covering Nifty active and passive index performance from time. Although I recommend index investing (in Nifty Next 50) only for less than 25-year-olds, many readers of all age groups have taken to it. If you are just joining in, I strongly recommend that you read the following posts before proceeding

Watch my talk on index investing: Can we get higher returns with lower risk?

List of Index Mutual Funds and ETFs in India: What to choose and what to avoid

Index Investing: advantages and disadvantages of being a passive investor

How new stock investors can quickly start investing using NIFTY Multi-Factor Indices

Are Nifty Smart Beta (strategic) Indices better than the Nifty Next 50?

Warning! Nifty Next 50 is NOT a large cap index!

Nifty 50 Equal Weight Index vs Nifty 50: Does equal weight result in more returns?

Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?!

Let us dive into the five test portfolios

1  NIfty Low Volatility 50 (top 10)*

The NIfty Low Volatility 50 is a set of 50 stocks (from top 300 stocks by market cap) with least fluctuations in monthly returns considered over the last one year period (trailing). So in June 2018, I looked at the monthly factsheet and invested in the top 10 stocks (one stock each) by weight (least volatile stocks occupies more weight).

Why? Because choosing low volatility stocks is a simple, yet rewarding way to beat market cap based indices at lower risk (see links above).

Rules from now on

1: Get the Nifty Low Vol 50 factsheet published each month end along with the full list of stocks in the index (see links below). This list will not have weight information.

2: Check if the stocks currently held are in top 10 (by weight) as mentioned in the factsheet. If not, check if there are in the full list.

3:  As long as an existing stock in the portfolio is present in the index (full list), buy one more. * I changed this rule so that sell transactions are minimised (from July to June 3-5 stocks have moved out of the top 10) So we started with the top 10 in June 2018 and will continue to hold them as long as they are part of the index. If they are removed from the index, we will replace them with a stock from the top 10 (with highest weight).

4: The portfolio will always have 10 stocks only. The STCG or LTCG paid will be accounted for at the end of each FY.

5: The portfolio will be updated each month.

This is the current status:

Current cost: 32,416.50

Current Value: 32,865.60. Too early to worry about returns.

2  Nifty 100 Low Volatility 30 (top 10)

This picks the 30 least volatile stocks from the NIfty top 100 index. We started with the top 10 in June 2018 and will follow the same rules as above.

Why? Same reason as above. It is quite possible that this portfolio will have significant overlap with the Top ten from Low Vol 50.

Rules

1: Get the Nifty 100 Low Vol 30 factsheet published each month end along with the full list of stocks in the index (see links below) and follow same rules as above.

Current Status:

Current Cost: 31,699.90. Current Value: 31,776.70

3 NIFTY Alpha Quality Value Low-Volatility 30 (top 10)*

NIFTY Alpha Quality Value Low-Volatility 30 Index consists of 30 stocks selected from NIFTY 100 and NIFTY Midcap 50 and reflects the performance of a portfolio of stocks selected based on
the top combination of Alpha, Quality, Value and Low-Volatility.  You can read more about its performance in the links above.

Why?   Best of all worlds – Growth investing + Value investing + low volatility.

Rules

1: Get the NIFTY Alpha Quality Value Low-Volatility 30 factsheet published each month end along with the full list of stocks in the index (see links below) and follow same rules as above.

Current Status:

Sold:  GlaxoSmithkline Consumer Healthcare Ltd. and Procter & Gamble Hygiene & Health

Purchased: Dabur and Maruti Suzuki (stocks with highest weight in the top 10, not already in the portfolio).

4 Nifty Next 50 (Top 10)*

The Nifty Next 50 (NN50) is the bottom 50 of the top 100 stocks arranged by market cap. So we get the index weights and after a bit of processing end up with this table. Notice the huge difference in market cap as we go down the index. A literal reason why I keep saying NN50 is not a large-cap index.

Security NameClose PriceIndex Mcap (Rs. Crores)Weight (%)
Britannia Industries Ltd.6213.75365555.43
JSW Steel Ltd.326.80339685.05
Godrej Consumer Products Ltd.1225.70308994.59
Motherson Sumi Systems Ltd.284.70227763.38
Dabur India Ltd.391.45221253.29
Piramal Enterprises Ltd.2536.30219893.27
Shree Cement Ltd.15554.20189652.82
Shriram Transport Finance Co. Ltd.1299.45188692.80
United Spirits Ltd.664.95188442.80
Ashok Leyland Ltd.125.80180932.69
MRF Ltd.74974.45181252.69
Aurobindo Pharma Ltd.607.10170742.54
Marico Ltd.331.65171252.54
Petronet LNG Ltd.219.20164402.44
Pidilite Industries Ltd.1063.50162022.41
Bosch Ltd.17509.95160322.38
Colgate Palmolive (India) Ltd.1184.85157912.35
Ambuja Cements Ltd.207.45152412.26
Avenue Supermarts Ltd.1485.40148322.20
Container Corporation of India Ltd.652.25143072.13
LIC Housing Finance Ltd.468.65141912.11
Havells India Ltd.543.35135942.02
ICICI Prudential Life Insurance Company Ltd.377.30113741.69
ACC Ltd.1339.90113231.68
Bank of Baroda112.65107291.59
Idea Cellular Ltd.59.35106091.58
InterGlobe Aviation Ltd.1088.50104611.55
Bharat Heavy Electricals Ltd.71.7597471.45
Cadila Healthcare Ltd.377.4096591.44
NMDC Ltd.108.1095761.42
L&T Finance Holdings Ltd.151.6593821.39
Procter & Gamble Hygiene & Health Care Ltd.9924.7593431.39
Oracle Financial Services Software Ltd.4074.7090521.35
General Insurance Corporation of India732.8590001.34
Cummins India Ltd.647.6587971.31
Bharat Electronics Ltd.108.6587361.30
Siemens Ltd.980.3587281.30
Rural Electrification Corporation Ltd.104.6586801.29
Steel Authority of India Ltd.83.0085711.27
DLF Ltd.188.8084211.25
SBI Life Insurance Company Ltd.674.3580921.20
Punjab National Bank76.1579881.19
Sun TV Network Ltd.782.3077071.15
Aditya Birla Capital Ltd.133.2073301.09
Hindustan Zinc Ltd.274.5069591.03
Power Finance Corporation Ltd.77.3069391.03
Emami Ltd.529.1564850.96
ABB India Ltd.1178.5062430.93
Oil India Ltd.209.8557160.85
NHPC Ltd.23.4552930.79

Why top 10? I see it as a lower risk, lower reward variant of the NN50.

Current Status

Cost: 60,917.80. Current value: 60,574.30

5 Nifty Next 50 (bottom 10)*

The idea here is to have a mid-capish portfolio with higher risk and possibly higher reward than the NN50. 

Notice the difference in the portfolio cap between top 10 NN50 and bottom 10 NN50. So it takes about ten times less to buy the NN50-bottom-10 compared to the NN50-top-10. This huge spread in market cap is again the reason for its special nature.

What is the plan now?

1: Post updates each month.

2: Periodically compare with respective indices and some active mutual funds.

Let us see what happens.

Lazy Investing Resources July 2018

Full list of stocks: Nifty Low Volatility 50

Full list of stocks: Nifty 100 Low Volatility 30

Full list of stocks: Nifty Alpha Value Quality Low Volatility 30

Factsheet: Nifty Low Volatility 50

Factsheet: Nifty 100 Low Volatility 30

Factsheet: Nifty Alpha Value Quality Low Volatility 30

All documents are sourced from the NSE.

One thought on “Lazy Investing: Five Test Stock Portfolios -July 2018 Update

  1. Any specific reason for not considering “Nifty Alpha Low Volatility 30” index as part of this analysis. This seems to be high return, low risk index on 10 year data

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