Testing Five Stock Portfolios from June 2018

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)

Company Name Weigh (%)
HDFC Bank Ltd. 3.47
Kotak Mahindra Bank Ltd. 2.9
Hindustan Unilever Ltd. 2.77
Colgate Palmolive (India) Ltd. 2.68
Britannia Industries Ltd. 2.67
Dabur India Ltd. 2.63
Mahindra & Mahindra Ltd. 2.62
Asian Paints Ltd. 2.56
Pidilite Industries Ltd. 2.51
Power Grid Corporation of India Ltd. 2.5

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

VR NLV50 - Testing Five Stock Portfolios from June 2018

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)

Company Name Weigh (%)
HDFC Bank Ltd. 5.44
Kotak Mahindra Bank Ltd. 4.55
Hindustan Unilever Ltd. 4.35
Mahindra & Mahindra Ltd. 4.11
Asian Paints Ltd. 4.02
Power Grid Corporation of India Ltd. 3.93
Tata Consultancy Services Ltd. 3.86
IndusInd Bank Ltd. 3.8
Pidilite Industries Ltd. 3.54
Hero MotoCorp Ltd. 3.45

VR N100LV30 - Testing Five Stock Portfolios from June 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)

Company Name Weigh (%)
HDFC Bank Ltd. 5.7
Hindustan Unilever Ltd. 4.96
Britannia Industries Ltd. 4.93
Coal India Ltd. 4.6
Tata Consultancy Services Ltd. 4.55
Colgate Palmolive (India) Ltd. 4.25
Procter & Gamble Hygiene & Health 4.21
IndusInd Bank Ltd. 3.91
GlaxoSmithkline Consumer Healthcare Ltd. 3.89
Castrol India Ltd. 3.59

VR NAQVLV - Testing Five Stock Portfolios from June 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.

Name Weight (%) Market Cap
Britannia Industries Ltd. 5.06 34850
JSW Steel Ltd. 5.01 34498
Consumer Products Ltd. 4.17 28717
Motherson Sumi Systems 3.6 24812
Dabur India Ltd. 3.14 21606
Ashok Leyland Ltd. 3.08 21235
Shriram Transport Finance 3.06 21117
Shree Cement Ltd. 2.99 20583
Piramal Enterprises Ltd. 2.98 20524
United Spirits Ltd. 2.75 18951
MRF Ltd. 2.7 18630
Pidilite Industries Ltd. 2.58 17809
Bosch Ltd. 2.44 16818
Colgate Palmolive (India) 2.44 16788
Marico Ltd. 2.41 16617
Petronet LNG Ltd. 2.39 16474
Aurobindo Pharma Ltd. 2.27 15644
Container Corporation of 2.2 15124
Ambuja Cements Ltd. 2.19 15091
LIC Housing Finance 2.09 14387
Bank of Baroda 1.89 13033
Havells India Ltd. 1.88 12927
ICICI Prudential Life 1.67 11523
ACC Ltd. 1.66 11447
Bharat Heavy Electricals 1.65 11363
InterGlobe Aviation Ltd. 1.63 11249
Idea Cellular Ltd. 1.6 10991
Avenue Supermarts Ltd. 1.57 10793
L&T Finance Holdings 1.53 10508
NMDC Ltd. 1.51 10405
Rural Electrification Corporation 1.42 9800
Cummins India Ltd. 1.38 9526
DLF Ltd. 1.36 9362
Bharat Electronics Ltd. 1.35 9276
Siemens Ltd. 1.35 9307
Cadila Healthcare Ltd. 1.34 9247
Sun TV 1.31 9040
General Insurance Corporation 1.29 8898
Oracle Financial Services 1.27 8755
Procter & Gamble 1.27 8756
Punjab National Bank 1.27 8775
SBI Life Insurance 1.2 8278
Aditya Birla Capital 1.17 8072
Steel Authority of 1.14 7843
Hindustan Zinc Ltd. 1.09 7513
Power 1.05 7230
ABB India Ltd. 0.95 6526
Emami Ltd.  0.93 6410
NHPC Ltd.  0.87 5981
Oil India Ltd. 0.85 5879

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

VR NN50Top10 - Testing Five Stock Portfolios from June 2018Cost: 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

VR NN50 bot10 - Testing Five Stock Portfolios from June 2018

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.

Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. You need to only cover my travel fare for the session.

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based InvestingYou can be rich 243x300 - Testing Five Stock Portfolios from June 2018

My first book is now available at a 35% discount for Rs. 258. It comes with nine online calculators.  Get it now .  The Kindle edition is only Rs. 199.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Cover pink - Testing Five Stock Portfolios from June 2018
My second book is now only Rs 199 (Kindle Rs. 99) Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.   Get the pdf for ₹199 (instant download)

Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

7 thoughts on “Testing Five Stock Portfolios from June 2018

  1. But, why don’t you ‘back-test’ your hypothesis with the same theory and number of stocks. There are enough tools available which will help you to ‘back-test’ for previous 10/15/20 years (whatever period you choose) and would help you to corroborate your theory with convincing results rather than ‘future testing’ it and then waiting for next 5 or 10 years to establish the theory.

    1. And why don’t you tell me which among those enough tools that are available would give me the monthly portfolio breakup in order to do the back test?

  2. Sir, one small doubt. Why do we have to buy only 1 stock from the top 10 as mentioned in the portfolio 1 section?

  3. Dear Professor,

    How will you buy the stocks – one each, weighted average, or same amount for each stock ?

    Thanks

Your feedback is valuable. Do let us know what you think about the article and help us improve