The fund is passively and has the same constituents as the Nifty 50, with a 2% allocation to each stock. As the stock market rally gets broad based, earnings growth catch up, the strategy could outperform the Nifty 50.
Over the last one year, the fund has delivered 28% compared to the Nifty s 22%. It has gained 112% from its lows of March 23, compared to the Nifty’s 91.5%. However over a 3 year period it has undeperformed Nifty gaining 8.81% compared to the Nifty’s 13.16%
“History has shown in 2003, 2005, 2007, 2009 and 2013, every time after peak polarisation when the top 10 stocks weight is close to or greater than 60%, the recovery or rally was led by the bottom stocks,” says Anil Ghelani, Head of Passive Products, DSP Mutual Fund. Ghelani believes a depolarisation trend is visible in India – in the Nifty 50, bottom-30 stocks index has broken out of a downtrend which was going on since 2018, and this momentum is likely to continue for some time which will benefit the equal weight Nifty 50.
The fund has also helped protect downside as over a 5 year rolling return basis, the Nifty 50 Equal Weight has returned a maximum of 52% and lost 4.5%, compared to the Nifty 50s 47.6% and 5%.
“Historically equal weights have done a bit better than normal weighted Nifty 50,”says Vijay Kuppa, Founder, Orowealth. One big benefit of passive funds is the low cost. DSP Equal Nifty 50, direct plan comes with a expense ratio of 40 basis points, which is lower than actively managed funds which could charge between 100-150 basis points,
While the Nifty has a 38% weight to financials, the Nifty 50 Equal Weight strategy has a 22% weight. Similarly Information Technology constitutes 10% of Nifty 50 Equal Weight index compared to 16% in Nifty 50. This lower weight makes the index less dependent on the fortunes of a single sector.
“Investors who are uncomfortable with high weights to a single sector which increases volatility could opt for this strategy,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services