Momentum factor-based investing has attracted investor sentiment in recent years. The momentum strategy has generated returns higher than broader indices and at times, the outperformance has been significant. Unlike the prevailing buy-low-sell-high canon, momentum factor-based investing takes the opposite approach. It is based on the premise that stocks doing well have momentum and hence, will continue to do well in the near term. Therefore, momentum investing seeks to ride the current wave (or momentum) of performing stocks and then, jump on to the next wave before the first one slows down.
However, given the current market conditions, mid-cap and small-cap stocks have significantly dropped in price and are available at lower valuations. Many investors consider it a good entry point to diversify their portfolio in mid-cap and small-cap funds. Future market leaders or large caps are thought to be coming from mid-cap companies. For investors that can handle the high risk and are looking for a low-cost passive solution for their mid-cap portfolio, investing in the mid-cap market through passive funds is a great alternative. Midcap funds that are passively managed have similar returns to actively managed midcap funds while carrying less risk.
Investors could consider investing in the Nifty Midcap150 Momentum 50 Index. The top seven sectors with the highest exposure in the index include capital goods, consumer services, chemicals, information technology, power, realty, and textiles. Furthermore, the momentum factor in the underlying Index seeks to benefit from market turbulence by purchasing short-term positions in rising stocks and selling them as soon as they begin to decline.
Edelweiss Mutual Fund has launched Edelweiss Nifty Midcap150 Momentum 50 Index Fund, it is an open-ended equity scheme replicating the Nifty Midcap150 Momentum 50 Index. Commenting on the launch of this NFO, Ms Radhika Gupta, MD and CEO at Edelweiss AMC, said, “Edelweiss AMC has successfully placed itself amongst the leaders in the passive fund’s category and is today managing the largest portfolio of passive debt funds. The launch of Edelweiss Nifty Midcap150 Momentum 50 Index Fund further strengthens our product portfolio within our passive fund offerings. With these products, we intend to reach out to a larger investor base and offer best-in-class solutions for the investor needs.”
Table 1: Details of Edelweiss Nifty Midcap150 Momentum 50 Index Fund
| Type | An open-ended Equity Scheme replicating the Nifty Midcap150 Momentum 50 Index. | Category | Index Fund |
| Investment Objective | The investment objective of the scheme is to provide returns before expenses that closely correspond to the total returns of the Nifty Midcap150 Momentum 50 Index subject to tracking errors. However, there is no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns. | ||
| Min. Investment | Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs. 1,000/- 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 | Nil |
| Fund Manager |
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Benchmark Index | NIFTY Midcap150 Momentum 50 Index (TRI) |
| Issue Opens | November 10, 2022 | Issue Closes | November 24, 2022 |
(Source: Scheme Information Document)
The investment strategy for Edelweiss Nifty Midcap150 Momentum 50 Index Fund will be as follows:
Edelweiss Nifty Midcap150 Momentum 50 Index Fund will track the Nifty Midcap150 Momentum 50 Total Return Index and will use a ‘Passive’ or indexing approach to try and achieve the Scheme’s investment objective.
The investment strategy would revolve around reducing the tracking error to the least possible through rebalancing the portfolio, considering the change in weights of stocks in the Index as well as the incremental collections/redemptions from the scheme. The Scheme will not attempt to beat the markets it tracks and will not seek defensive positions at any point in time, irrespective of the market movements. A passive approach means the Scheme will deliver index-linked returns and eliminates risks pertaining to over/underperformance vis-a-vis a benchmark.
The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of these schemes. The scheme shall invest all of its funds as per its investment objective and asset allocation pattern, except to meet its liquidity requirements. The Scheme shall also invest up to 5% in Money Market Instruments, Government Securities, bonds, debentures, and cash at call, as per its investment allocation pattern.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for Edelweiss Nifty Midcap150 Momentum 50 Index Fund
| Instruments | Indicative Allocations (% of Net Assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Equity and equity-related securities constituting the Nifty Midcap150 Momentum 50 Index | 95 | 100 | Very High |
| Debt and Money Market Instruments | 0 | 5 | Low to Medium |
(Source: Scheme Information Document)
About the benchmark
The Nifty Midcap150 Momentum 50 Index aims to track the performance of the top 50 companies within the Nifty Midcap150 selected based on their Normalised Momentum Score. The Normalised Momentum Score for each company is determined based on its 6-month and 12-month price return, adjusted for volatility. Stock weights are based on a combination of the stock’s Normalised Momentum Score and its free-float market capitalisation.
Here is the list of the top 10 constituents by their weightage and sector representation under the Index as of October 31, 2022:
(Source: NSE Nifty Midcap150 Momentum 50 Index Fund)
# Note that the Index will rebalance semi-annually in January and July.
Who will manage ICICI Prudential Nifty Midcap150 Momentum 50 Index Fund?
Mr Bhavesh Jain and Mr Bharat Lahoti will be the designated fund managers for this scheme.
Mr Bhavesh Jain has completed his Masters in Management Studies (Finance) from Mumbai University and has an overall experience of 14 years in the equity market segment. He has been associated with Edelweiss AMC for over 11 years, formerly as an Equity Dealer and was previously associated with Edelweiss Securities Limited as SGX Nifty Arbitrage Trader.
At Edelweiss Mutual Fund, Mr Jain currently manages Edelweiss Arbitrage Fund, Edelweiss Large Cap Fund, Edelweiss Recently listed IPO Fund, Edelweiss Equity Savings Fund (Equity Portion), Edelweiss Aggressive Hybrid Fund, Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund, Edelweiss Balanced Arbitrage Fund, Edelweiss Nifty 50 Index Fund, Edelweiss ETF – Nifty Bank, Edelweiss Nifty 100 Quality 30 Index Fund, Edelweiss Greater China Equity Off-Shore Fund, Edelweiss Emerging Markets Opportunities Equity Offshore Fund, Edelweiss Asean Equity Offshore Fund, Edelweiss Europe Dynamic Equity Off-Shore Fund, Edelweiss US Value Equity Offshore Fund Edelweiss Gold and Silver ETF Fund of Fund, Edelweiss NIFTY Large Mid Cap 250 Index Fund and Edelweiss US Technology Equity Fund of Fund.
Mr Bharat Lahoti holds BE (Electronics & Telecommunication) from Mumbai University and MMS (Finance) from N L Dalmia Institute of Management Studies) degrees. He has an overall experience of 17 years in the research function of organizations in the financial services sector. He also has experience in making investments in units of Gold ETFs. Before joining Edelweiss AMC, he was associated with D.E. Shaw India Software Pvt. Ltd. as a Senior Manager – Fundamental Research.
At Edelweiss Mutual Fund, Mr Lahoti currently manages Edelweiss Large Cap Fund, Edelweiss Recently listed IPO Fund, Edelweiss Equity Savings Fund (Equity Portion), Edelweiss Aggressive Hybrid Fund, Edelweiss Balanced Advantage Fund, Edelweiss Nifty 50 Index Fund, Edelweiss ETF – Nifty Bank, Edelweiss Nifty 100 Quality 30 Index Fund, Edelweiss Greater China Equity Off-Shore Fund, Edelweiss Emerging Markets Opportunities Equity Offshore Fund, Edelweiss Asean Equity Offshore Fund, Edelweiss Europe Dynamic Equity Off-Shore Fund, Edelweiss US Value Equity Offshore Fund, Edelweiss Gold and Silver ETF Fund of Fund and Edelweiss US Technology Equity Fund of Fund.
Fund Outlook – Edelweiss Nifty Midcap150 Momentum 50 Index Fund
Edelweiss Nifty Midcap150 Momentum 50 Index Fund aims to invest in securities comprising the Nifty Midcap150 Momentum 50 Index and generate parallel returns, subject to tracking errors. The scheme endeavours to benefit from factor investing through a momentum factor strategy.
Midcap stocks coupled with momentum as a filter have shown remarkable results earlier, the momentum strategy outperforms even during bear markets. The scheme offers investors to invest in the top 50 midcap companies that are performing well in terms of their recent price movements. The fund would look at the last 6-12-month price performance for volatility and free float to determine momentum. The fund will track the performance of the top 50 companies with high momentum from the Nifty Midcap150 Index universe.
The scheme endeavours to capitalise on volatile market trends by investing in stocks that are on their way up and selling them before the prices start falling as per the underlying Index. However, do note that the momentum method is a risky and aggressive investment strategy built on the premise that stocks and sectors with a recent track record of success will continue to do so and vice versa.
This makes the scheme a high-risk, high-return investment proposition, as the funds focusing on momentum investing may go through a period of underperformance if there is any sharp change in market dynamics. Additionally, the persistent repercussions of geopolitical tensions, spiralling inflation, and a hike in policy rates to curb demand and control inflation may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is uncertain. These factors, among others, may impact the top constituents of the Index, and the portfolio may face intensified volatility in the near term.
The fortune of this scheme depends on the performance of the underlying Index. Thus, the scheme is suitable for refined investors who understand the mid-cap market space and could bear the high risk due to higher volatility. However, mid-cap and small-cap funds may not do well in the near future; you must invest in them only if you have a long horizon of at least 5-7 years to sustain various market phases.
This article first appeared on PersonalFN here
