Nifty 100 Low Volatility 30 vs Nifty 50: Return difference at an all-time low

Published: December 9, 2021 at 7:00 am

Last Updated on August 22, 2022

In this article, we compare the performance of the Nifty 100 Low volatility 30 Total Return Index with the Nifty 50 Total Return Index. The 5-year and 10-year return differences between these indices are currently at an all-time low.

The Nifty 100 low volatility 30 index consists of 30 large cap stocks from the Nifty 100 universe with the lowest price volatility over the last year. The stocks with the lowest volatility have the highest weight, but the index historically has many stocks with comparable weights, unlike a market capitalization based index like NIfty 50 or Nifty 100/500.

We have discussed the low volatility index in detail earlier, pointing out that it is one of the simplest ways to pick stocks. See: Low volatility stock investing – Does it work? And Select your first stock without breaking your head! Here is how. And ICICI Prudential Nifty Low Vol 30 ETF FOF Review.

This is the since inception evolution of the NIfty 100 low volatility 30 and NIfty 50 total return indices. As usual, a deep analysis is necessary.


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since inception evolution of the Nifty 100 low volatility 30 and Nifty 50 total return indices
since inception evolution of the Nifty 100 low volatility 30 and Nifty 50 total return indices

We also publish Retirement Stock Portfolio Analysis based primarily on a low volatility strategy each month. In Sep 2021, the absolute return of the stock portfolio *(incl dividends) was 41.13%, while an equivalent investment in the UTI Nifty Index fund was 28.86%.  After just one month, this return difference shrunk to just about 1.5% triggering this analysis (since then, the Nifty has fallen too).

This can also be seen from the following graph.

Evolution of the Nifty 100 low volatility 30 and Nifty 50 total return indices since 1st jan 2020
Evolution of the Nifty 100 low volatility 30 and Nifty 50 total return indices since 1st Jan 2020

Next, we shall look at the differences in 1-year, 5-year and 10-year rolling returns. That is Nifty 100 Low Volatility  30 return minus Nifty 50 return.

Nifty 100 Low Vol 30 1Y return minus Nifty 50 1Y return
Nifty 100 Low Vol 30 1Y return minus Nifty 50 1Y return

Notice that the1Y return difference is currently the second-lowest after the 2008 crash.

Nifty 100 Low Vol 30 5Y return minus Nifty 50 5Y return
Nifty 100 Low Vol 30 5Y return minus Nifty 50 5Y return

The 5Y return difference hit an all-time low earlier this year and is currently close to that value. For the first time, the 5Y return of the low volatility index is lower than that of the Nifty 50.

Nifty 100 Low Vol 30 10Y return minus Nifty 50 10Y return
Nifty 100 Low Vol 30 10Y return minus Nifty 50 10Y return

The 10Y return difference is still positive (the low volatility index has outperformed Nifty), but the value is at an all-time low.

What do these results mean? We have earlier pointed out that the factor indices have a short history, with much of it backtested. We may see evidence of the inevitable in the Indian context: No strategy outperforms forever. There will always be cyclic ups and down relative to a market-cap-weighted index. While low volatility fans are guaranteed lower volatility, they must appreciate that they will not always (also) get higher returns.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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