Tata Nifty Midcap 150 Momentum 50 Index Fund Review

Published: October 6, 2022 at 6:00 am

Tata Nifty Midcap 150 Momentum 50 Index Fund is an open-ended scheme tracking NIFTY Midcap 150 Momentum 50 Index. The fund is currently in its NFO period (4th to 17th Oct 2022). In this article, we analyse the performance of the underlying index.

The Nifty Midcap150 Momentum 50 Index tracks the performance of the top 50 companies within the Nifty Midcap 150 selected based on their Normalized Momentum Score. The Normalized Momentum Score for each company is determined based on its 6-month and 12-month price return, adjusted for volatility. Source: Index factsheet.

  • Base date: 1st April 2005
  • This is a custom-built index and was launched only on Aug 16th 2022. So it has no trading history
  • The weight of the stock in the index is derived by multiplying the free float market cap by the Normalized Momentum Score of that stock.
  • The index is re-balanced on a semi-annual basis using data ending the last trading day of May and November.
  • Stocks should have a minimum listing history of 1 year on the cut-off date.
  • Non – F&O stocks within Nifty Midcap 150 are ineligible for inclusion if the total instances of the stock hitting the upper or lower circuit (price band) during the past six months as of the cut-off date is more than or equal to 20% of the number of total trading days over the same period.

Calculations (Source: NSE Index methodology document)

  • Normalized Momentum Score =
    (1+ Weighted Average Z score) if Weighted Average Z score >=0
    (1- Weighted Average Z score) ^-1 if Weighted Average Z score < 0
  • Weighted Average Z Score = 50% * (12-month Momentum Z Score) + 50%
    * (6-month Momentum Z Score)
  • The 12 – month Momentum Z score for each stock is calculated as per
    the following formula: [MR12 – μMR,12]/ σMR,12

    • MR12 is the 12-month Momentum Ratio of the stock
    • µMR,12 is the mean of the 12-month Momentum Ratios of the eligible
      universe
    • σMR,12 is the std. deviation of the 12-month Momentum Ratios of the
      eligible universe
    • The 6 – month Momentum Z score for each stock is defined similarly.
  • 12-month Momentum Ratio (MR12) = 12-month Price return / σp
    • 12-month price return (12 M return): [Price (M-1)/Price (M-13)]-1
      Where M is the rebalancing month, and prices are as of the last
      trading day of M-1 Month and M-13 Month
    • Std.Deviation (σp): Annualised standard deviation of lognormal
      daily returns of the stock for one year
    • The 6-month Momentum Ratio is defined similarly.

We had already discussed the main characteristics of a momentum index. When the market is moving up, momentum shines. When the market is going down or goes nowhere, momentum struggles. See: UTI Nifty200 Momentum 30 Index Fund: Who should invest? We should expect similar characteristics from Tata Nifty Midcap 150 Momentum 50 Index Fund.

The evolution of the index from 1st Aug 2018 is shown below.


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Growth of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI since 1st Aug 2018
Growth of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI since 1st Aug 2018
  • The two extreme ovals indicate times when there was(is) no momentum in the market. As expected, the Nifty Midcap 150 Momentum 50 Index does not do well.
  • The middle oval shows the market recovery after the March 2020 crash. The momentum index was not a clean outperformer even during such a time.
  • The disappointing show of the quality index is also seen. See: DSP Nifty Midcap 150 Quality 50 Index Fund Review

The two bear market regions shown above are expanded in the graphs below.

Growth of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI since 1st Aug 2018 to 1st April 2020
Growth of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI since 1st Aug 2018 to 1st April 2020
Growth of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI since 18th Oct 2021 to 1st OCt 2022
Growth of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI since 18th Oct 2021 to 1st OCt 2022

Anyone looking to invest in Tata Nifty Midcap 150 Momentum 50 Index Fund should recognise that this fund will underperform the Nifty Midcap 150 index for several months from time to time.

The momentum index 3Y return is often comparable to the other indices indicated in the 3Y rolling return chart below.

3Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI
3Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI

This can persist even over 5Y from time to time.

5Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI
5Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI

It is only over 7Y and 10Y that the momentum and quality index manages to outperform. Still, even the backtested history is less than a decade and the actual traded history much shorter.

7Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI
7Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI
10Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI
10Y rolling returns of Midcap 150 Momentum 50 TRI vs Nifty Midcap 150 TRI vs Nifty Midcap 150 Quality 50 TRI vs Nifty Next 50 TRI

Should you invest in Tata Nifty Midcap 150 Momentum 50 Index Fund? Our recommendation is no. The index is too volatile and can be quite frustrating to hold. The expenses – which should be much higher than a mid cap or nifty next 50 index fund – will further enhance this frustration. There is not enough history to assume the risk vs reward balance is reasonably favourable over the long term.

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