ICICI Prudential Nifty 200 Momentum 30 ETF And Index Fund: Aims to Benefit from Momentum Strategy

In addition, micro variables might contribute to the explanation of returns within certain asset classes. For instance: Value, Quality, Low Volatility, Momentum, etc. Factor investing can help improve portfolio performance, reduce volatility, and increase diversification. Knowing the factors that drive returns in your portfolio can help you to choose the right mix of assets and strategies for your portfolio.

In India, the momentum factor that has attracted investor sentiments and is slowly gaining traction, with several fund houses launching schemes based on momentum factor investing. Momentum investing is a strategy that aims to capitalise on the continuance of existing trends in the market. It seeks to take advantage of market volatility by taking short-term positions in stocks going up and selling them as soon as they show signs of going down.

The objective here is to benefit from stock price volatility in the short term, and it is similar to surfing on the ocean waves. One of the easiest ways to invest in momentum strategy is by taking exposure to the Nifty 200 Momentum 30 Index. Conceptualised by the NSE, this Index brings together 30 stocks sorted on the basis of momentum factor from the Nifty 200 universe.

ICICI Prudential Mutual fund has launched two schemes based on momentum strategy, ICICI Prudential Nifty 200 Momentum 30 ETF  and ICICI Prudential Nifty 200 Momentum 30 Index Fund.   Both these schemes replicate the Nifty 200 Momentum 30 Index.

On the launch of these funds, Mr Chintan Haria, Head- Of Product Development & Strategy at ICICI Prudential AMC, said, "ICICI Prudential Nifty200 Momentum 30 ETF and ICICI Prudential Nifty 200 Momentum 30 Index Fund are the newest addition to our product bouquet. Both the offerings allow investors to capitalise on market trends by investing in stocks that have shown upward price momentum. The Index comprises 30 stocks selected from the Nifty 200 universe based on combining the stock's Momentum Score and free-float market capitalisation. Investors looking to invest in a momentum-based factor may consider investing in this scheme for the long term". The units of the ETF scheme will be listed on the BSE and NSE."

The investment strategy for ICICI Prudential Nifty 200 Momentum 30 ETF and Index Fund will be as follows:

Both ICICI Prudential Nifty 200 Momentum 30 ETF and ICICI Prudential Nifty 200 Momentum 30 Index Fund will follow a passive investment strategy and seek to invest in stocks constituting the underlying Index in the same proportion as in the Index and endeavour to track the benchmark index.

The schemes will follow the momentum strategy of investing that aims to capitalise on the continuance of existing trends in the market. It follows certain risk management rules to address volatility and other hidden traps that reduce profits. The approach uses a stringent set of guidelines that provide market entry and exit points for specific assets based on technical data.

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The performance of these schemes may not be commensurate with the performance of the underlying Index on any given day or over any given period. Such variations are commonly referred to as tracking errors. These schemes intend to maintain a low tracking error by aligning the portfolio in line with the Index. The stocks comprising the underlying Index are periodically reviewed by Index Service Provider.

A particular stock may be dropped, or new securities may be included as a constituent of the Index. In such an event, the Funds will endeavour to reallocate its portfolio, but the available investment/ disinvestment opportunities may not permit precise mirroring of the underlying Index immediately. The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of these schemes. A small portion (0-5% of the Net Assets) of the scheme may be kept liquid to meet the liquidity and expense requirements.

Under normal circumstances, the asset allocation will be as under:

About the Benchmark

The Nifty200 Momentum 30 Index aims to track the performance of 30 high momentum stocks across large and mid-cap stocks within the Nifty 200 Index. The Index constitutes only those stocks that are eligible for derivative trading from the Nifty 200 index universe. From this, it selects the top 30 stocks with the highest 'normalised momentum score'.

The Normalised Momentum Score for each stock is determined based on recent 6-month and 12-month price returns, adjusted for volatility. Stock weights are based on a combination of the stock's Normalised Momentum Score and its free-float market capitalisation.

Here is the list of the top 10 constituents by weightage and sector representation of the Index as of June 30, 2022:

Note, the Index will rebalance semi-annually in June and December.

Who will manage ICICI Prudential Nifty 200 Momentum 30 ETF and Index Fund?

Mr Kayzad Eghlim and Mr Nishit Patel will be the designated fund managers for this scheme.

Mr Kayzad Eghlim  has more than 30 years of experience in financial services, and he holds an MBA, M. Com, and B. Com degree. Before joining ICICI Pru AMC, he was associated with IDFC Investment Advisors Ltd. as Dealer - Equities; Prime Securities as a Manager; Canbank Mutual Fund (IS Himalayan Fund) as a Fund Manager; and Canbank Mutual Fund as Equity Dealer assisting the Fund Manager. He has worked with the Primary Market Department (IPO) at the beginning of his career.

At ICICI Pru AMC, Mr Kayzad currently manages ICICI Prudential Equity - Arbitrage Fund, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex ETF, ICICI Prudential Nifty Index Fund, ICICI Prudential Equity Savings Fund, ICICI Prudential Nifty Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bharat 22 FOF, ICICI Prudential Bank ETF, ICICI Prudential Midcap Select ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential Healthcare ETF, ICICI Prudential FMCG ETF, ICICI Prudential Consumption ETF, ICICI Prudential Smallcap Index Fund, ICICI Prudential Private Banks ETF, ICICI Prudential Silver ETF Fund of Fund, and ICICI Prudential Nifty Auto ETF.

Mr Nishit Patel  joined ICICI Prudential Asset Management Company Limited in November 2018 and was working under ETF Business. He is a Chartered Accountant and B. Com graduate. At ICICI Pru AMC, Mr Patel currently manages ICICI Prudential Midcap Select ETF, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex Index Fund, ICICI Prudential Nifty Index Fund, ICICI Prudential Regular Gold Savings Fund (FOF), ICICI Prudential Gold ETF, ICICI Prudential Sensex ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential BHARAT 22 FOF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bank ETF, ICICI Prudential Private Banks ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential FMCG ETF, ICICI Prudential Healthcare ETF, ICICI Prudential Consumption ETF, ICICI Prudential Smallcap Index Fund, ICICI Prudential Silver ETF Fund of Fund, and ICICI Prudential Nifty Auto ETF.

Fund Outlook - ICICI Prudential Nifty 200 Momentum 30 ETF and Index Fund

ICICI Prudential Nifty 200 Momentum 30 ETF and ICICI Prudential Nifty 200 Momentum 30 Index Fund aim to invest in securities comprising the Nifty 200 Momentum 30 Index and generate parallel returns, subject to tracking errors. Both the schemes endeavour to benefit from factor investing through a momentum factor strategy.

The Nifty200 Momentum 30 Index consists of 30 companies selected from the Nifty 200 index based on their normalised momentum score. Both the schemes offer an opportunity to diversify equity investments across various sectors and market capitalisation through 30 stocks selected from the Nifty 200 Universe. The underlying index is overweight on some of the fast-growing high momentum stocks from the sectors like Metals, Consumer Services, Chemicals, Power and Capital Goods.

The schemes also reduce subjective biases by adding winners and removing laggards based on well-defined processes. It is able to capitalise on volatile market trends by investing in stocks that are on their way up and selling them before the prices start falling as per the underlying index. The momentum method is a risky and aggressive investment strategy built on the premise that stocks and sectors with a recent track record of success will continue to do so and vice versa.

This makes these schemes high-risk, high-return investment propositions, as the funds focusing on momentum investing may go through a period of underperformance if there is any sharp change in market dynamics. In addition, the scheme is prone to high market risk due to the persistent repercussions of the Russia-Ukraine conflict, rising interest rates, and spiralling inflation which may pose a significant risk to economic growth and are the root cause of the prevailing intensified market volatility. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. Among many other factors, these may affect the scheme's performance, and their portfolios may face higher volatility in the near term.

The fortune of these schemes will depend on the performance of the underlying index. Thus, these schemes are suitable for refined investors with a high-risk appetite and a long investment horizon of at least 5-7 years to sustain various market phases.

While both the schemes are passively managed and will be tracking the Nifty 200 Momentum 30 index, you can choose between the ETF and the index fund variant based on your preference. You should ensure that your investment objective aligns with the respective fund you decide to invest in.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst