Momentum investing is nothing however an funding technique that seeks to capitalise on the continuance of current market tendencies. This funding technique is just not new to us as S&P BSE already has a momentum index that was launched in December 2015. It’s now that we’ve got a devoted fund (UTI Nifty 200 Momentum 30 Index Fund) by means of which, we will take such publicity. This fund was launched quickly after the Nationwide Inventory Trade (NSE) launched its Nifty 200 Momentum 30 Index. 

The intention of this index is to trace the efficiency of the highest 30 firms from the Nifty 200 index which are chosen primarily based on their normalised momentum rating. The normalised momentum rating for every firm is derived primarily based on its 6-month and 12-month risk-adjusted worth return. Inventory weights are determined primarily based on the person inventory’s normalised momentum rating and its free-float market capitalisation. Additional, this index is re-balanced quarterly. Nevertheless, the momentum technique adopted by the S&P BSE Momentum Index is sort of completely different. As an alternative of 12-month and 6-month risk-adjusted worth returns, it solely goes with 12-month risk-adjusted worth returns. Nevertheless, if the 12-month historical past is just not obtainable, then it takes 9-month risk-adjusted worth returns. Subsequently, there are excessive probabilities that the outcomes of each indices could be fairly completely different. 

So as to perceive how the technique is, allow us to take a look at its efficiency. Though for S&P BSE Momentum Index and Nifty 200 Momentum 30 Index, the bottom worth is on the market from April 2005. Nevertheless, it’s prudent to not decide the efficiency of the indices primarily based on their base worth. Subsequently, we’d be trying on the efficiency of the S&P BSE Momentum Index.

As we will see within the above graph, the long-term momentum funding technique performs means higher than S&P BSE Sensex Whole Returns Index (TRI), S&P BSE 500 TRI, S&P BSE 150 Mid-Cap TRI and S&P BSE 250 Small-Cap TRI. Now, allow us to see the way it performs by way of danger. 

As we will see, by way of danger as measured by the utmost drawdown, the momentum index did effectively. In truth, among the many different indices, it had the bottom most drawdown. A most drawdown is nothing however a measure that helps us to know the precise ache of funding made. Subsequently, we will say that momentum investing does have the potential to create wealth within the long-term. Nevertheless, feelings are one thing that you’ll want to maintain at bay whereas investing this manner, which is the precise drawback of funding failures. Funding failure happens not due to the markets however as a result of the truth that your feelings are in play.