Lazy Investing: Stock Test Portfolio October 2018

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.

Lazy Investing: Stock Test Portfolio October 2018

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?!

What is the best way to invest in Nifty Next 50 Index?

Let us dive into the five test portfolios

Test Portfolio Rules

1: Check the monthly list of stocks for each index from the NSE website

2: If current stocks in the test portfolio are part of the index, buy one stock of each.

3: If current stocks in the test portfolio have been removed from the index, sell it and buy the same no of stocks +1 appropriately. For example, the changes in the Nifty Next 50 for this month are shown below. JSW Steel has been removed from the top of the index. So I sold those 4 stocks and (test) purchased Lupin instead (a new entry). Then added one more stock of Lupin (4+1) for this months quota. In the tables below, stocks in red have been sold and stock have in blue are new entries.

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.

Pros: Stock selection is trivial as long as you do not mind the price at which you buy. The stocks from the strategic indices are solid names and I believe are a good buy at any price.

Cons: As pointed out by readers before, because I chose to buy one stock each, the weights are imbalanced in favour of some stocks. I start correcting for this from the next month.

Changes in the Nifty Next 50 Oct 2018

Cummins India Ltd. Exclusion from Index
Emami Ltd. Exclusion from Index
JSW Steel Ltd. Exclusion from Index
Power Finance Corporation Ltd. Exclusion from Index
Punjab National Bank Exclusion from Index
Rural Electrification Corporation Ltd. Exclusion from Index
Bandhan Bank Ltd. Inclusion into Index
Biocon Ltd. Inclusion into Index
HDFC Standard Life Insurance Company Ltd. Inclusion into Index
ICICI Lombard General Insurance Company Ltd. Inclusion into Index
Lupin Ltd. Inclusion into Index
The New India Assurance Company Ltd. Inclusion into Index

Current Top Ten Nifty Stocks Oct 2018

Stock Weight
Britannia 5.36
Godrej 4.54
Dabur 3.77
Lupin 3.37
Aurobindo 3.27
Shree 3.22
Motherson 3.21
Piramal 3.12
Bosch 2.85
Marico 2.69

Current Bottom Ten Nifty Stocks Oct 2018

Stock Weight
Steel 1.1
Vodafone 1.1
Bandhan 1.05
Bharat 1.04
Aditya 0.99
SBI Life 0.96
Sun 0.95
Oil 0.93
New 0.87
NHPC 0.8

Test portfolio 1: Ten stocks from the top of Nifty Next 50

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.

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

Holding Quantity (Units) % of Total Portfolio Total Cost (Rs.) Total Value (Rs.)
Ashok Leyland 5 0.42% 651.2 579
Britannia Inds. 5 20.73% 31,011.45 28,787.50
Dabur India 5 1.47% 2,104.35 2,039.25
Godrej Consumer Products 7 3.61% 5,975.05 5,014.45
JSW Steel 0 0.00% 0 0
Lupin 4 2.44% 3,583.60 3,385.00
Motherson Sumi Systems 5 0.86% 1,470.35 1,193.50
Piramal Enterprises 5 8.09% 13,059.30 11,230.00
Shree Cement 5 55.26% 85,762.70 76,740.25
Shriram Transport Finance 5 3.74% 6,451.95 5,199.75
United Spirits 9 3.38% 5,646.70 4,695.30
Total: Stocks 100.00% 1,55,716.65 1,38,864.00
Total: Portfolio 1,55,716.65 1,38,864.00

Sector Weighting

Sector Net Asset (%) Value (Rs.)
Construction 54.96 74,292.50
FMCG 29.16 39,422.10
Healthcare 10.75 14,526.75
Financial 3.87 5,230.75
Automobile 1.26 1,704.00
Chemicals 0 0
Communication 0 0
Cons Durable 0 0
Diversified 0 0
Energy 0 0
Engineering 0 0
Metals 0 0
Others 0 0
Services 0 0
Technology 0 0
Textiles 0 0
Total 100 1,35,176.10

Current Status

Ten stocks from the top of Nifty Next 50

Test Stock Portfolio 2: Ten stocks from the bottom of Nifty Next 50

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

Holding Quantity (Units) % of Total Portfolio Total Cost (Rs.) Total Value (Rs.)
ABB 5 38.12% 6,324.65 6,543.75
Aditya Birla Capital 5 3.14% 672.45 539
Emami 0 0.00% 0 0
Hindustan Zinc 5 8.08% 1,437.50 1,387.75
NHPC 5 0.69% 121.75 119
Oil India 5 5.90% 1,069.95 1,013.00
Power Finance Corp. 0 0.00% 0 0
Punjab National Bank 0 0.00% 0 0
SAIL 5 1.94% 378.35 332.75
SBI Life Insurance Company 5 16.09% 3,223.70 2,762.50
Sun TV Network 5 19.05% 3,268.25 3,269.75
The New India Assurance 5 5.95% 1,099.25 1,020.75
Vodafone Idea 5 1.05% 193.75 179.75
Total: Stocks 100.00% 17,789.60 17,168.00
Total: Portfolio 17,789.60 17,168.00

Sector Weighting

Sector Net Asset (%) Value (Rs.)
Engineering 38.37 6,456.75
Financial 25.15 4,232.25
Services 18.91 3,181.25
Metals 9.97 1,677.50
Energy 6.57 1,105.25
Communication 1.03 172.75
Automobile 0 0
Chemicals 0 0
Cons Durable 0 0
Construction 0 0
Diversified 0 0
FMCG 0 0
Healthcare 0 0
Others 0 0
Technology 0 0
Textiles 0 0
Total 100 16,825.75

Current Status

Ten stocks from the bottom of Nifty Next 50

Test stock Portfolio 3: Ten stocks from NIFTY 100 Low-Volatility 30

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

Holding Quantity (Units) % of Total Portfolio Total Cost (Rs.) Total Value (Rs.)
Asian Paints 5 8.96% 6,661.45 6,306.00
HDFC Bank 5 14.07% 10,483.35 9,909.25
Hero Motocorp 5 20.55% 16,580.95 14,469.75
Hindustan Unilever 4 8.92% 6,606.25 6,278.40
IndusInd Bank 5 11.74% 9,432.70 8,263.50
Kotak Mahindra Bank 5 8.29% 6,387.05 5,835.75
Mahindra & Mahindra 5 5.46% 4,526.85 3,842.50
Pidilite Industries 5 7.05% 5,526.10 4,966.50
Power Grid Corporation 5 1.34% 960.55 942.25
Tata Consultancy Services 5 13.62% 9,883.55 9,591.50
Total: Stocks 100.00% 77,048.80 70,405.40
Total: Portfolio 77,048.80 70,405.40

Sector Weighting

Sector Net Asset (%) Value (Rs.)
Financial 33.64 23,216.25
Automobile 26.06 17,984.75
Chemicals 15.75 10,872.75
Technology 14.34 9,898.75
FMCG 8.86 6,114.00
Energy 1.35 930.25
Communication 0 0
Cons Durable 0 0
Construction 0 0
Diversified 0 0
Engineering 0 0
Healthcare 0 0
Metals 0 0
Others 0 0
Services 0 0
Textiles 0 0
Total 100 69,016.75

Current Status

Ten stocks from NIFTY 100 Low-Volatility 30

Test Stock Portfolio 4: Ten stocks from NIFTY Alpha Quality Value Low-Volatility 30

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.

Holding Quantity (Units) % of Total Portfolio Total Cost (Rs.) Total Value (Rs.)
Britannia Inds. 5 28.01% 31,011.45 28,787.50
Castrol India 5 0.70% 803.35 721.75
Coal India 5 1.36% 1,390.10 1,393.00
Colgate-Palmolive 5 5.35% 5,803.85 5,499.25
Dabur India 4 1.59% 1,714.25 1,631.40
GSK Consumer Healthcare 0 0.00% 0 0
HDFC Bank 5 9.64% 10,460.10 9,909.25
Hindustan Unilever 5 7.63% 8,340.55 7,848.00
IndusInd Bank 5 8.04% 9,432.70 8,263.50
Maruti Suzuki India 4 28.36% 34,928.50 29,148.80
P&G Hygiene & Health Care 0 0.00% 0 0
Tata Consultancy Services 5 9.33% 9,883.55 9,591.50
Total: Stocks 100.00% 1,13,768.40 1,02,793.95
Total: Portfolio 1,13,768.40 1,02,793.95

Sector Weighting

Sector Net Asset (%) Value (Rs.)
FMCG 42.75 42,629.35
Automobile 27.59 27,512.40
Financial 17.69 17,640.75
Technology 9.93 9,898.75
Energy 2.04 2,038.25
Chemicals 0 0
Communication 0 0
Cons Durable 0 0
Construction 0 0
Diversified 0 0
Engineering 0 0
Healthcare 0 0
Metals 0 0
Others 0 0
Services 0 0
Textiles 0 0
Total 100 99,719.50

Current Status

Ten stocks from NIFTY Alpha Quality Value Low-Volatility 30

Test Stock Portfolio 5: Ten stocks from Nifty Low Volatility 50

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).

Holding Quantity (Units) % of Total Portfolio Total Cost (Rs.) Total Value (Rs.)
Asian Paints 5 8.30% 6,661.45 6,306.00
Britannia Inds. 5 37.89% 31,011.45 28,787.50
Colgate-Palmolive 5 7.24% 5,803.85 5,499.25
Dabur India 5 2.68% 2,104.35 2,039.25
HDFC Bank 5 13.04% 10,483.35 9,909.25
Hindustan Unilever 5 10.33% 8,340.55 7,848.00
Kotak Mahindra Bank 5 7.68% 6,387.05 5,835.75
Mahindra & Mahindra 5 5.06% 4,526.85 3,842.50
Pidilite Industries 5 6.54% 5,526.10 4,966.50
Power Grid Corporation 5 1.24% 960.55 942.25
Total: Stocks 100.00% 81,805.55 75,976.25
Total: Portfolio 81,805.55 75,976.25

Sector Weighting

Sector Net Asset (%) Value (Rs.)
FMCG 58.35 43,022.75
Financial 20.69 15,254.75
Chemicals 14.75 10,872.75
Automobile 4.95 3,651.00
Energy 1.26 930.25
Communication 0 0
Cons Durable 0 0
Construction 0 0
Diversified 0 0
Engineering 0 0
Healthcare 0 0
Metals 0 0
Others 0 0
Services 0 0
Technology 0 0
Textiles 0 0
Total 100 73,731.50

Current Status

Ten stocks from Nifty Low Volatility 50So the plan now is to keep updating this and see how it goes.

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2 thoughts on “Lazy Investing: Stock Test Portfolio October 2018

  1. Feedback : The tables showing the respective portfolios can be in a better format for this particular topic. Right now it appears quite messy.

    Question :
    1. Was any technical/fundamental analysis done before removing/adding a particular stock and it’s respective quantity ?
    2. How is the sector allocation decided for each of the portfolios.

    P.S. All the portfolios are beating there respective indices so far 🙂

    1. Let me see if I can make the tables better. The whole idea behind lazy investing is not to do any kind of analysis. I have not done any thinking about sector allocation.

Comments are closed.