Alpha advantage: Target market outperformers with Mirae Asset's new fund

Looking to invest in the Indian stock market but don't have a trading account? Mirae Asset has launched a new option for you!

What is it?

The Mirae Asset Nifty200 Alpha 30 ETF Fund of Fund is a mutual fund that invests in another investment option - the Mirae Asset Nifty200 Alpha 30 ETF. This ETF focuses on 30 large and mid-sized companies that are chosen based on their recent performance (alpha score) instead of their overall market size. The idea is to capture stocks that are on an upward trend.

• The New Fund Offer for the scheme opens on Monday, July 8, 2024, and closes on Monday, July 22, 2024. 
• The fund managers are Ms. Ekta Gala and Mr. Vishal Singh. 
• Minimum investment should be Rs 5,000 and in multiples of Re 1 thereafter. Systematic Investment Plan can be set up with an investment of Rs 500 and in multiplies of Re 1 thereafter.

Benefits:

• No Demat Account Needed: Unlike buying stocks directly, you don't need a trading account to invest in this fund.
• Focus on Momentum: Aims to benefit from companies that are currently doing well.
• Professionally Managed: Experienced fund managers handle the investment decisions.

Things to Consider:

• Higher Risk: This strategy involves more risk compared to traditional funds, so it's best for long-term investors comfortable with potential ups and downs.
• Higher Fees: Since this fund invests in another fund (ETF), there might be slightly higher fees compared to regular mutual funds.

 “Mirae Asset Nifty200 Alpha 30 ETF Fund of Fund is a strategic addition to our existing product portfolio, which seeks to provide a valuable opportunity for investors who wish to invest in the Mirae Asset Nifty200 Alpha 30 ETF without requiring a broking or a demat account. This product is designed to capture the alpha and momentum strategy, focusing on 30 large and mid-cap stocks* selected and weighted based on their ‘alpha score’ rather than free float market cap," said  Siddharth Srivastava, Head-ETF Products, Mirae Asset Investment Managers (India).

The portfolio is reviewed on a quarterly basis.

Understanding Factors:

In the world of finance, a factor can be any characteristic that helps explain how a group of investments performs and the level of risk associated with them. These factors are essentially traits that can be used to group similar investments. Imagine factors like size (large vs. small companies) or value (companies trading below their perceived worth) as categories for organizing stocks.

Smart Beta Explained:

The Mirae Asset Nifty200 Alpha 30 ETF focuses on a specific factor - alpha. But some factors are more reliable than others.  Smart beta funds aim to identify and invest in factors that are persistent over time and have a strong ability to explain the returns and risks of a broad range of stocks.

There are two main types of factors considered by smart beta strategies:

Macroeconomic Factors: These capture broad risks that affect all asset classes, such as the economic cycle, Gross Domestic Product (GDP), inflation, and interest rates.

Style Factors: These focus on specific investment styles, like value investing or growth investing.

Alpha is simply a ‘persistence’ factor i.e. which seeks to benefit from continued latest trends in the market. By selecting and weighing stocks purely based on “Alpha score”, index remains unbiased towards large or midcap stock and seeks to capture the alpha and momentum strategy in a true to label manner. 

Alpha Score: This is a number assigned to each stock based on its recent performance compared to the broader market. Stocks that are consistently outperforming the market will have a higher alpha score.

Focus on Alpha: The Mirae Asset Nifty200 Alpha 30 ETF selects and weights its holdings based on these alpha scores, aiming to capture companies that are on an upward trend and potentially continue to outperform.

Essentially, alpha helps identify stocks that are good performers in their own right, not just because the entire market is doing well. 

This index seeks to generate returns by capturing latest market trends and hence has historically exhibited higher portfolio churns in order to capture in-favour segments and stocks. However, investors should be aware of the higher drawdowns and increased volatility associated with this index, and consider it from a long-term investment perspective.

The scheme will re-open for continuous sale and repurchase from July 29, 2024.

Portfolio of Nifty200 Alpha 30 Index

Recent Changes in Nifty200 Alpha 30 Index

Why you may consider investing in the fund ?

• The Nifty200 Alpha 30 index consist of 30 stocks which are selected from its parent Nifty 200 index based on

‘Jensen’s Alpha’. The weight of stocks in the index is based on their alpha scores.

• Alpha is categorized as a “persistence” factor i.e. which seeks to benefit from continued latest trends in the

market.

• The index adjust to changing market conditions and increases the coverage and weight to currently

outperforming stocks and sectors. (Slide 16 & 17)

• The index has shown consistent long-term outperformance vis-à-vis broad-based and other smart beta indices

over the last 1,3,5,7 and 10 year period on a CAGR basis.(Slide 13, 14 and 21)

• While weighing securities Nifty200 Alpha 30 Index only uses alpha score and no free-float market cap leading to

unbiased allocation towards large-cap or mid-caps (Slide 17)

• Nifty200 Alpha 30 Index has outperformed all actively managed large & Mid-cap funds across tenure (slide 22)

• While Nifty200 Alpha 30 Index has historically done well, it comes with higher drawdown and heightened

volatility, Thus, it is advisable to evaluate the fund from long-term perspective.

• Relatively low-cost option to take exposure in smart beta ETFs than actively managed mutual funds.