market volatility: Navigating market volatility with Nifty Alpha Low Volume ETF

As fairness markets around the globe unravel towards a backdrop of escalating geopolitical tensions and rate of interest hikes, fairness traders are fazed by heightened volatility and most of the investor’s portfolios could have slipped into the pink. This may be an unnerving expertise for a lot of, particularly those that are new to investing. One of many first strikes by budding traders throughout phases of uncertainty is to pause their fairness funding as a method to guard the portfolio from additional draw back. Nonetheless, this doesn’t assist when checked out from a long-term perspective.

The important thing level of concern right here is volatility. So, traders who’re averse to market volatility can contemplate merchandise the place low volatility is likely one of the main standards whereas placing collectively a portfolio. Additionally, traders search to outperform excessive alpha producing names as properly within the portfolio. That is the place choices primarily based on two elements – Alpha and Low Volatility – come into the image.

The Nifty Alpha Low-Volatility Index

Over the previous couple of years, fund homes have been providing a wide range of funding merchandise which are primarily based on elements comparable to alpha and low volatility. One such providing which mixes each these elements is the Nifty Alpha Low Volatility index. The index is designed to replicate the efficiency of shares chosen foundation the mixture of alpha and low volatility.

The Nifty Alpha Low-Volatility 30 index is a group of 30 firms which have outperformed the broader market over the previous 12 months whereas being comparatively much less unstable. Chosen from a basket of 150 shares (Nifty 100 Index + Nifty Midcap 50 Index), the index is rebalanced as soon as each six months. The weightage of every inventory within the portfolio is capped at 5%. As of June 2022, the index is diversified throughout over 10 sectors with FMCG, IT, Healthcare, Energy and Chemical substances constituting the highest 5 sectors. The sector-wise distribution and weights assigned fluctuate with time because the index adjusts to altering market situations, giving choice to outperforming shares with comparatively low volatility.

By way of returns generated, within the calendar 12 months 2021, the Nifty Alpha Low Volatility 30 TRI delivered a 31% return as in comparison with 25.6% of Nifty 50 TRI and 26.5% of Nifty 100 TRI. Equally, over the previous decade, Nifty Alpha Low Volatility 30 TRI has outperformed the broad market indices 7 out of 10 occasions till 2021.

Methods to Make investments
Since traders can not put money into such indices immediately until they individually buy every constituent inventory within the proportion of their weightages, mutual fund homes have launched Change Traded Fund (ETFs) that replicate the Nifty Alpha Low-Volatility 30 Index. Traders with a demat account can go for ETF and people and not using a demat can go for the Fund of Fund (FoF). The ETF might be bought or offered on the inventory change at any time of the buying and selling hours. The associated fee related to ETF choices tends to be decrease since they’re passively managed. So, in case you are an investor seeking to put money into names that will assist generate alpha with much less volatility, then you could contemplate investing in Alpha Low Vol 30 index-based ETF or FoF.


(The writer, Chintan Haria, is Head – Product Improvement & Technique, ICICI Prudential AMC)