The Motilal Oswal Value Index (MOVI) allows the investor to change equity and fixed income levels as per MOVI values. In this post, I try to understand how the MOVI is calculated.
This is only an academic post about the MOVI and is neither a recommendation to use MOVI or Motilal Oswal Mutual Funds.
MOVI-based indexing is a form of dynamic asset allocation. There are funds like
- Franklin PE-based fund which uses only PE levels.
- IDFC Dynamic Equity Fund that uses a combination of PE and 200-day moving averages.
- DSP BR dynamic asset allocation fund which uses Yield Gap
- Other funds can be found here: Performance of Dynamic Asset Allocation Mutual Funds
How the MOVI is calculated
Information on this is quite sketchy. All we know is that it is a combination of the Nifty PE, PB and Dividend Yield. The 90-day moving average of the MOVI is used for dynamic asset allocation.
MOVI Chart
I have tried to come up with a formula for the MOVI by looking at the above chart and using Nifty PE,PB and DY values.
My guess (not a random one) is, the MOVI has a form which is similar to
MOVI ~ LOG((PE+PB)/DY). Where the Log stands for Logarithm and ~ stands for ‘approximately’.
The overall behaviour is very close to the actual MOVI chart, by are higher by about 1.3-1.5 times. This guess formula is good enough to come up with an independent asset allocation strategy. However, that is not quite necessary as we have the actual MOVI itself!
This is a better MOVI chart
The asset allocation matrix as per MOVI levels is given below.
The MOVI-based strategy or any of the other strategies noted above is likely to result in a better risk-adjusted return. It may not always result in a better absolute return, as this comprehensive study shows: Is it possible to time the market?
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how much do the charges eat out into the return, as a benchmark of comparison – I would like you to present charges adjusted return for the above fund v/s any nifty index fund (with below avg charges)
Nice way for overall direction of the market and weightage to different asset class basically into equity and debt.
I think a similar analysis could be drawn to PE based analysis also. PE level of more than 18 or 19 reduce equity exposure. Add equity any level below 15. Exit above 21 or 22 level.
With pe 25.35 pb 3.51 and div y 1.26 .. your approx method was giving 1.34. Would you reconfirm it once please with example calculation