Testing Five Stock Portfolios from June 2018

Last Updated on December 28, 2021 at 6:44 pm

From June 2018, I have started testing five stock portfolios based on NSE indices. 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.

Since I have just started the test, I can only share the cost involved, the stocks chosen, why they were chosen and their sectoral distribution. I would like to commit myself to this by announcing it right at the start. 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.  You are welcome to suggest such lazy portfolios.

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

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 Top 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). This portfolio will look at the monthly factsheet and invest in the top 10 stocks by weight (least volatile stocks occupies more weight). I wonder of this portfolio could be considered the opposite of a momentum portfolio.

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

1: Get the Nifty Low Vol 50 factsheet published each month end

2: Buy 1 stock from the top ten stocks by weight the next business day.

3: If any stock previously present is not present in the top 10, then sell it

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 updated each month.

Top ten stocks by weight of Nifty Low Volatility 50 (May 2018)

Cost: As on 1st June 2018, it will cost Rs. 15,984 to construct this brokerage (excluding brokerage) and this is the VR snapshot

Nature:  Large cap with FMCG tilt

2 Top Ten Stocks from Nifty 100 Low Volatility 30

This picks the 30 least volatile stocks from the NIfty top 100 index. We will choose the top ten such stocks by weight.

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 and follow same rules as above.

Top ten stocks by weight of Nifty 100 Low Volatility 30 (May 2018)

Cost: Rs. 15, 812

Nature: Large cap with fin services tilt

3 Top 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
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 and follow same rules as above.

Top ten stocks by weight of NIFTY Alpha Quality Value Low-Volatility 30 (May 2018)

Cost: 30,765

Nature: Large and mid-cap with large FMCG tilt.

4 Top Ten Stocks from 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. The top ten stocks are in red and the bottom ten in blue. Notce 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.

Cost: Rs 31,964

Nature: Large-cap (according to VR of course)

5 Bottom Ten Stocks from Nifty Next 50

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

Cost: Rs. 3,833

Notice the difference in the portfolio cap between top 10 NN50 and bottom 10 NN50

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.

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