Recently, factor-based investing has gained popularity among retail investors, commonly known factors are Enhanced Value, Momentum, Quality, Low Volatility etc., adding these factors to your portfolio can help improve risk-adjusted returns. Value Investing is a factor-based strategy that was developed in the 1920s by Benjamin Graham, and over the years, some of the most successful investors, like Warren Buffet, have leveraged the value investing tenet to build large fortunes.
Value factor tends to outperform when the market is recovering from a bear market cycle. The objective of value investing is to purchase stocks of companies that are ‘inexpensive’ in comparison to their fundamentals and have a high ‘margin of safety’. The approach is based on the concept that undervalued stocks should be held until the market recognises their mispricing and corrects its course, and then sell these stocks when the trading price exceeds their intrinsic value.
After a stellar performance in the 2000s, the Value factor was an underperformer in the 2010s. However, since the start of the 2020s, Value has experienced a sharp comeback, outperforming the market significantly. Value stocks are back in favour now due to the current market conditions and many investors are seeking to invest in value stocks. Instead of investing in value stocks directly, you may consider investing in the S&P BSE Enhanced Value Index, which measures the performance of the top 30 ‘Value stocks’ from the S&P BSE LargeMidCap Index.
Motilal Oswal Mutual Fund has launched two new passively managed factor-based schemes – Motilal Oswal S&P BSE Enhanced Value ETF and Motilal Oswal S&P BSE Enhanced Value Index Fund. Both these schemes replicate/track the S&P BSE Enhanced Value Total Return Index.
Commenting on the launch, Mr Navin Agarwal, MD & CEO at Motilal Oswal Mutual Fund said, “To cater to the evolving needs of the investors, we have introduced ETFs & index funds in the factor investing segment. We aspire to build a unique brand positing by establishing ourselves as a fund house to drive the factor investing category in India. With the launch of both these funds, it will complete our bouquet of single-factor-based passive offerings.”
Mr Pratik Oswal, Head of Passive Funds at Motilal Oswal Mutual Fund added, “These single factor-based funds are suitable for investors looking to diversify their portfolio & gain exposure to the value factor. Value tends to do well in market recoveries as was seen last year and also in 2008, 2012 and 2013. So, anyone betting on a market recovery in the next 12-15 months can look at value. The Value funds aim to invest in companies that are trading at relatively attractive valuations based on parameters like low Price to Earnings, Price to Book and Price to Sales ratios. This strategy has historically worked well during times of market recovery.”
Table 1: Details of Motilal Oswal S&P BSE Enhanced Value ETF
| Type | An open-ended scheme replicating/tracking the S&P BSE Enhanced Value Total Return Index | Category | Exchange Traded Fund |
| Investment Objective | The investment objective of the scheme is to provide returns that, before expenses, correspond to the total returns of the securities as represented by the S&P BSE Enhanced Value Total Return Index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved. |
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| Min. Investment | Rs 500/- and in multiples of Re 1/- thereafter. | Face Value | Rs 10/- per unit |
| Entry Load | Not Applicable | Exit Load | Nil |
| Fund Manager | Mr Swapnil Mayekar Mr Abhiroop Mukherjee |
Benchmark Index | S&P BSE Enhanced Value Total Return Index |
| Issue Opens | July 29, 2022 | Issue Closes | August 05, 2022 |
(Source: Scheme Information Document)
Table 2: Details of Motilal Oswal S&P BSE Enhanced Value Index Fund
| Type | An open-ended fund replicating/tracking the S&P BSE Enhanced Value Total Return Index | Category | Index Fund |
| Investment Objective | The investment objective of the scheme is to provide returns that, before expenses, correspond to the total returns of the securities as represented by the S&P BSE Enhanced Value Index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved |
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| Min. Investment | Rs 5,000 and in multiples of Re 1/- thereafter. | Face Value | Rs 10/- per unit |
| SIP/STP/SWP | Available | ||
| Plans |
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Options |
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| Entry Load | Not Applicable | Exit Load |
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| Fund Manager | Mr Swapnil Mayekar Mr Abhiroop Mukherjee |
Benchmark Index | S&P BSE Enhanced Value Total Return Index |
| Issue Opens | July 29, 2022 | Issue Closes | August 05, 2022 |
(Source: Scheme Information Document)
The investment strategy for Motilal Oswal S&P BSE Enhanced Value ETF and Index Fund will be as follows:
Both Motilal Oswal S&P BSE Enhanced Value ETF and Motilal Oswal S&P BSE Enhanced Value Index Fund follow single factor-based investment strategies that aim to include 30 ‘Value’ stocks that are most attractive in valuations based on rule-based parameters.
These schemes seek to invest in the constituent of the S&P BSE Enhanced Value Total Return Index in a similar proportion to achieve returns equivalent to the benchmark subject to tracking error. The underlying S&P BSE Enhanced Value Index comprises the top 30 companies from the S&P BSE LargeMidCap Index based on their value score. The score is based on an equal-weighted average of price-to-book, price-to-value and price-to-sales scores. These Value stocks tend to trade below their intrinsic value and may outperform over the long term.
The performance of these schemes may not be commensurate with the performance of the underlying Index on any given day or over any given period. Such variations are commonly referred to as tracking errors. These schemes intend to maintain a low tracking error by aligning the portfolio in line with the Index. The stocks comprising the underlying Index are periodically reviewed by Index Service Provider. The scheme would invest in Constituents of S&P BSE Enhanced Value Index, units of Liquid schemes/ debt schemes, and debt and/or money market instruments as stated in the asset allocation table.
Under normal circumstances, the asset allocation will be as under:
Table 3: Asset Allocation for Motilal Oswal S&P BSE Enhanced Value ETF
| Instruments | Indicative Allocations (% of Net Assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Constituents of S&P BSE Enhanced Value Index | 95 | 100 | Very High |
| Units of Liquid/ debt schemes, debt and money market instruments | 0 | 5 | Low |
(Source: Scheme Information Document)
Table 4: Asset Allocation for Motilal Oswal S&P BSE Enhanced Value Index Fund
| Instruments | Indicative Allocations (% of Net Assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Constituents of S&P BSE Enhanced Value Index | 95 | 100 | Very High |
| Units of Liquid schemes/ debt schemes, debt and/or money market instruments | 0 | 5 | Low |
(Source: Scheme Information Document)
About the benchmark
The S&P BSE Enhanced Value Index is designed to measure the performance of the 30 companies in the S&P BSE LargeMidCap with the highest valuations based on three fundamental measures – book value-to-price, earnings-to-price and sales-to-price. Constituents are weighted by the product of their float-adjusted market capitalization and value score, subject to security and sector constraints.
Here is the list of the top 10 constituents by their weightage and sector representation of the Index as of June 30, 2022:
(Source: Motilal Oswal S&P BSE Enhanced Value ETF and Index Fund PPT)
Note, that the index will rebalance semi-annually in March and September.
Who will manage Motilal Oswal S&P BSE Enhanced Value ETF and Index Fund?
Mr Swapnil Mayekar and Mr Abhiroop Mukherjee will be the designated fund managers for this scheme.
Mr Swapnil Mayekar has over 12 years of experience in fund management and product development and holds a Master of Commerce (Finance Management) degree. He has been working with Motilal Oswal Asset Management Company Ltd. since March 2010 till date. Prior to joining Motilal Oswal AMC, he was associated with Business Standard, as a Research Associate.
At Motilal Oswal Mutual Fund, Mr Mayekar currently manages, Motilal Oswal Nasdaq 100 Fund of Fund, Motilal Oswal Nifty Bank Index Fund, Motilal Oswal Nifty 500 Fund, Motilal Oswal Nifty Midcap 150 Index Fund, Motilal Oswal Nifty Small cap 250 Index Fund, Motilal Oswal Midcap 100 ETF and Motilal Oswal M50 ETF, Motilal Oswal Nifty 50 Index Fund, Motilal Oswal Nifty Next 50 Index Fund, Motilal Oswal Nifty 200 Momentum 30 ETF, Motilal Oswal Nifty 200 Momentum 30 Index Fund, Motilal Oswal S&P BSE Low Volatility Index Fund and Motilal Oswal S&P BSE Low Volatility Index Fund.
Mr Abhiroop Mukherjee will be managing the debt portion of this scheme. He holds B. Com (Honours) and PGDM (Finance) degrees and has an overall experience of 15 years in Fixed Income Securities trading and fund management. He joined Motilal Oswal AMC in May 2011 and is currently working as Associate Vice President – Fixed Income. Prior to this, he was associated with PNB Gilts Ltd. as Assistant Vice President – Fixed Income.
At Motilal Oswal Mutual Fund, Mr Mukherjee currently manages, Motilal Oswal Ultra Short Term Fund, Motilal Oswal Liquid Fund and Motilal Oswal 5 Year G-Sec Fund of Fund. For Debt Component – Motilal Oswal Focused 25 Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Flexicap Fund, Motilal Oswal Long Term Equity Fund, Motilal Oswal Dynamic Fund and Motilal Oswal Nasdaq Fund of Fund, Motilal Oswal Equity Hybrid Fund, Motilal Oswal S&P 500 Index Fund, Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative and Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive, Motilal Oswal MSCI EAFE Top 100 Index Fund and Motilal Oswal NASDAQ Q 50 ETF.
Fund Outlook – Motilal Oswal S&P BSE Enhanced Value ETF and Index Fund
Motilal Oswal S&P BSE Enhanced Value ETF and Motilal Oswal S&P BSE Enhanced Value Index Fund aim to invest in securities comprising the S&P BSE Enhanced Value Index and generate parallel returns, subject to tracking errors. Both the schemes will be passively managed and endeavours to benefit from the Value investing strategy.
The schemes passively invest in stocks of undervalued companies with growth potential and offer diversification benefits by investing across market caps and sectors. Value investing is one of the oldest and best-known styles of investing. It is based on the foundation that stocks with relatively favourable values, or ‘Low-value stocks’, typically outperform stocks with higher valuations over the long term. The schemes provide investors with an opportunity to gain from a turnaround of value, as the undervalued stocks are expected to perform well during the market recovery.
Although the schemes aim to invest in high-quality stocks that are currently undervalued due to dynamic market conditions and are expected to rise once the market recovers, they are still prone to high market risks. In addition, the persistent repercussions of the Russia-Ukraine conflict, rising interest rates, and spiralling inflation may pose a significant risk to economic growth and are the root cause of the prevailing intensified market volatility, this may weigh down the index and its top constituents. Among many other factors, these may affect the scheme’s performance, and their portfolios may face higher volatility in the near term.
The fortune of these schemes will depend on the performance of the underlying index. Thus, these schemes are suitable for refined investors with a high-risk appetite and a long investment horizon of at least 5-7 years to sustain volatile market phases.
While both the schemes will be tracking the S&P BSE Enhanced Value Index, you can choose between the ETF and the index fund variant based on your preference. You should ensure that your investment objective aligns with the respective fund you decide to invest in.
