The Nifty 50, probably the most extensively adopted indices, assigns weights to shares based mostly on free-float market capitalisation. Against this, the Nifty 50 Equal Weight fund has the identical constituents because the Nifty 50, however allocates solely 2% to every inventory, with rebalancing on the finish of every quarter.
“Equal-weighted indexes work higher when broader markets are rising as market-cap-weighted indexes have much less allocation to the identical shares within the index,” stated Kunal Valia, CIO-listed investments, Waterfield Funding Advisors.
Fund managers stated the Nifty 50 has a excessive focus in two sectors – financials at 35% and expertise at 18%. In contrast with this, the Nifty 50 Equal Weight has a 22% weight on financials and 10% on IT.
“An equal-weight technique has decrease inventory and business focus. It presents a disciplined funding method with no bias the place every inventory contributes equally,” stated Anil Ghelani, head of passive investments and merchandise, DSP MF.
Fund managers imagine as earnings development picks up within the broad financial system and a brand new financial cycle begins, the Nifty will additional depolarise, which may result in Nifty Equal Weight outperforming the Nifty 50.
“Since June 2020, depolarisation has begun with the load within the prime 10 shares falling from 62.7% to 58.3%, resulting in Nifty Equal weight outperforming Nifty 50,” stated Ghelani.
On this interval, the Nifty 50 gave an absolute return of 82.7% versus the Nifty Equal 50 return of 99.7%. Nifty Equal 50 has outperformed the Nifty 50 since inception, returning 16% in contrast with the Nifty 50 annualised return of 14.1%.
As depolarisation additional picks up, the Nifty Equal Weight Technique may generate alpha over the Nifty 50. Nifty 50 Equal Weight has outperformed the Nifty 50 index in 12 out of 21 calendar years.
Whereas DSPs Equal 50 technique is greater than 4 years outdated, HDFC and Aditya Birla Solar Life have provided this technique over the previous yr.