Motilal Oswal Nifty 200 Momentum 30 ETF and Index Fund: Can These Schemes Amplify Your Returns?

Factor-based investing is popular globally, especially the momentum factor that has attracted investor sentiments. In India, factor investing is slowly gaining traction, with several fund houses launching schemes that track the index based on these factors. The Nifty200 Momentum 30 Index selects the top 30 companies with the highest 6-month and 12-month 'momentum'. The underlying index measures performance of high momentum stocks to generate optimal returns.

Motilal Oswal Mutual Fund, one of the prominent AMC in India with funds across all major segments, has launched two schemes with a factor investing approach 'Motilal Oswal Nifty 200 Momentum 30 ETF' and 'Motilal Oswal Nifty 200 Momentum 30 Index Fund'.

On the launch of these schemes, Mr. Pratik Oswal, Head of Passive Funds at Motilal Oswal AMC, said, "As India scripts its economic recovery from the pandemic influenced disruption, businesses are seen planning capex led expansion and overall earnings are expected to be on an upward trend. This is expected to channelize bull related market scenario which makes it conducive for Momentum Factor to be the lead performer. We recommend investors to use our momentum-focused fund as a satellite allocation approach to enhance their portfolio's risk-adjusted returns."

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

Both, Motilal Oswal Nifty 200 Momentum 30 ETF and Motilal Oswal Nifty 200 Momentum 30 Index Fund, will follow a passive investment strategy and seek to invest in the constituent of Nifty 200 Momentum 30 Index in the same proportion (weights) as in the index and track the benchmark index. The investment strategy would involve offering investment returns that are similar to the total returns of Nifty 200 Momentum 30 Total Return Index before fees/expense and subject to tracking error.

The portfolio turnover will be confined only to rebalancing the portfolio on account of new subscriptions, redemptions, and changes in the composition of the underlying index, due to this scheme being a passively managed fund.

Both the schemes aim to invest in the constituent of Nifty 200 Momentum 30 Index, in the range of 95% to 100%. A small portion of the scheme would also invest in units of Liquid/ debt schemes, debt, and money market instruments as stated in the asset allocation table in order to meet the liquidity 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 capitalization.

Here is the list of the top 10 constituents by weightage and sector representation of the index as of December 31, 2021:

Who will manage Motilal Oswal Nifty 200 Momentum 30 ETF and Index Fund?

Mr. Swapnil Mayekar and Mr. Abhiroop Mukherjee will be the designated fund managers for these schemes.

Mr. Swapnil Mayekar will be managing the equity portion of the portfolio. He has over 11 years of experience in fund management and product development and has completed Master of Commerce in (Finance Management). Prior to joining Motilal Oswal Asset Management Company Ltd. he was associated with Business Standard as Research Associate.

At Motilal Oswal AMC, Mr Mayekar currently manages Motilal Oswal Nasdaq 100 Fund of Fund, Motilal Oswal Nifty Bank Index Fund, Motilal Oswal Nifty 500 Fund, Motilal Oswal Nifty Midcap 150 Index Fund, Motilal Oswal Nifty Small cap 250 Index Fund, Motilal Oswal Midcap 100 ETF and Motilal Oswal M50 ETF, Motilal Oswal Nifty 50 Index Fund and Motilal Oswal Nifty Next 50 Index Fund.

Mr. Abhiroop Mukherjee will be managing the debt component of the portfolio. He is a B. Com (Honours) graduate, holds PGDM (Finance) degree, and has over 13 years of experience in Debt and Money Market Instruments, Securities trading, and fund management. Before joining Motilal Oswal AMC as Associate Vice President - Debt and Money Market Instruments, he has worked with PNB Gilts Ltd. as Assistant Vice President - Debt and Money Market Instruments.

At Motilal Oswal AMC, Mr. Mukherjee currently manages Motilal Oswal Ultra Short Term Fund, Motilal Oswal Liquid Fund, Motilal Oswal 5 Year G -Sec ETF, Motilal Oswal 5 Year GSec Fund of Fund, Motilal Oswal Focused 25 Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Flexicap Fund, Motilal Oswal Long Term Equity Fund, Motilal Oswal Dynamic Fund, Motilal Oswal Nasdaq Fund of Fund, Motilal Oswal Equity Hybrid Fund, Motilal Oswal S&P 500 Index Fund, Motilal Oswal Asset Allocation Passive Fund of Fund - Conservative and Motilal Oswal Asset Allocation Passive Fund of Fund - Aggressive, Motilal Oswal MSCI EAFE Top 100 Index Fund and Motilal Oswal NASDAQ Q 50 ETF

Fund Outlook - Motilal Oswal Nifty 200 Momentum 30 ETF and Index Fund

Motilal Oswal Nifty 200 Momentum 30 ETF and Motilal Oswal Nifty 200 Momentum 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 momentum factor strategy.

As per historical data, the Momentum factor has been one of the best performing factors, generating significant excess returns. In the past, some of the best momentum returns have been earned during favourable market conditions and expansionary economic cycles. The Momentum approach is an aggressive and volatile investment strategy based on the assumption that stocks/sectors that have performed well recently will continue to do so and vice versa.

This suggests that the approach is based mostly on recent occurrences, with little regard for the stock's or sector's long-term outlook. It requires higher risk tolerance, as the fund focusing on momentum investing may go through a period of underperformance if there is any sharp change in market dynamics.

Given that, the looming threat of the Delta plus the Omicron variant and the US Federal Reserve's announcement of the reduction of stimulus pose a major risk to economic growth, the margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is uncertain. These factors, among many others, may weigh down the Nifty 200 Momentum 30 Index and could have a bearing on the scheme's performance.

The fortune of these schemes will depend on the performance of the underlying index. Thus, these schemes are suitable for refined investors with 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

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