Performance comparison: Cap-Based Vs. Factor Indices (2009-2025)

This is an update over the post about performance comparison of various factor and cap-based indices in 2022.

I have used data from January 1, 2009 until March 31, 2025. I could have considered data since April 1, 2005. However, the data for Nifty 50 Value 20 index is available only from 2009. I have considered the Price index (and not the Total Returns index) for the analysis.

Have considered multiple cap-based indices.

1. Nifty 50
2. Nifty 100
3. Nifty Midcap 150
4. Nifty Smallcap 250
5. Nifty Microcap 250
6. Nifty Next 50
7. Nifty 500

I have considered the indices for various factors as well.

1. Value: Nifty 50 Value 20, Nifty 500 Value 50
2. Momentum: Nifty 200 Momentum 30
3. Quality: Nifty 200 Quality 30
4. Low Volatility: Nifty 100 Low Volatility 30

Factor Indices vs Cap-based Indices: Calendar Year Returns

Factor Indices vs Cap-based Indices: Performance comparison

How do you use this information?

1. Do not trust the data blindly. There may be errors in my analysis.
2. I have shown long-term data. Hence, for some of the indices, the long-term data may look very impressive. Firstly, past performance does not guarantee future performance. Secondly, the long-term data usually looks quite smooth. It will conveniently hide the volatile journey that a particular index would have taken you through. Or rather you tend to ignore those aspects and focus merely on the returns. Long-term, for most investors, is just a series of short-term investments. Hence, before considering any of the indices chosen for this post, you must look beyond the returns data as well.
3. Conviction in an investment strategy is critical. No investment strategy, no matter how good, works all the time. No investment strategy, no matter how bad, fails all the time. The ups and downs will test your patience. If you lack conviction, you will mostly likely jump the ship at the wrong time.
4. Focus on building a low-cost diversified long-term portfolio. If you are keen on adding a factor product, you can consider such a product as part of your satellite portfolio and allocate accordingly.

The Caveats

1. Past performance (or outperformance) does not guarantee future performance (outperformance).
2. While I have considered the data from January 2009, many of these factor indices were launched much later. Hence, the outperformance by these factor indices may simply be a result of back-fitting. Performance on live data may turn out to be underwhelming. I wrote a post in early 2024 where I compared the performance of factor indices since launch.
3. Alpha (excess returns) from an investment strategy can shrink if serious money chases the strategy. For instance, for some of the strategies/factor indices, the index funds/ETFs have been launched very recently.
4. I have shown returns for indices. You don’t invest in indices. You invest in index funds or ETFs. Such products will have tracking difference for various reasons and will lower your returns. The tracking difference may increase if the underlying stocks are less liquid.               

Source

NiftyIndices.com

Featured Image Credit: Unsplash

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This post is for education purpose alone and is NOT investment advice. This is not a recommendation to invest or NOT invest in any product. The securities, instruments, or indices quoted are for illustration only and are not recommendatory. My views may be biased, and I may choose not to focus on aspects that you consider important. Your financial goals may be different. You may have a different risk profile. You may be in a different life stage than I am in. Hence, you must NOT base your investment decisions based on my writings. There is no one-size-fits-all solution in investments. What may be a good investment for certain investors may NOT be good for others. And vice versa. Therefore, read and understand the product terms and conditions and consider your risk profile, requirements, and suitability before investing in any investment product or following an investment approach.