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The Index Alpha smallcase

The Index Alpha smallcase
Reading Time: 4 minutes
  • Active mutual funds have been underperforming globally & in India
  • Index funds have proven to be the best way to get broad equity exposure
  • Index Alpha uses asset allocation to give equity returns for less volatility
  • For ₹1/day, you can avail this strategy that is managed by QED Capital, a SEBI licensed Portfolio Management Service

The case for Index Funds

The Nifty 50 and Nifty Next 50 cover 77% of the total stock market capitalisation. This provides an exposure to all the major sectors. Also, because of the free float market cap weights, the companies that are doing well get higher weightage. Therefore, with Nifty 50 and Nifty Next 50 in your portfolio, you effectively buy the listed Indian market.

Index funds have been advocated by Nobel Laureates like Paul Samuelson and renowned investors like Warren Buffett as the best vehicle to capture long term equity returns. Today, index funds are on the radar of all equity investors.

This is because various independent reports show that majority of equity mutual funds have been unable to beat their benchmarks over shorter and longer time periods.

Also, it is well documented now by S&P’s research that the majority of mutual funds, globally and in India, are unable to beat their benchmarks. One of the primary reasons for mutual funds underperformance is that the 1-2% fixed fee that mutual funds charge is a big drag on returns, which they are not able to overcome. And fund managers (on average) have been shown to consistently not achieve this.

Index funds on the other hand take away the risk of choosing a fund manager and a fund house. An investor is therefore only left with risk of managing market fluctuations and volatility. But this requires a process and a plan.

Introducing Index Alpha smallcase

The Index Alpha smallcase is a managed portfolio solution of Index ETFs. This aims to deliver equity like returns with bond like volatility and drawdowns over the long term i.e. provide improved risk-adjusted returns.

This can therefore be a low risk “Core” portfolio for most investors looking to build wealth over the long run with lesser volatility and drawdowns, as seen in the long-term performance of this smallcase.

Time PeriodNIFTY60/40Index Alpha
Feb 15 - Feb 16-22.80%-18.20%-8.40%
Oct 10 - Dec 11
Jan 08 - Oct 08-62.60%-50.70%-22.00%

Index Alpha Performance

The three pillars on which this portfolio solution is built is:

  1. Bridge investor ‘Behavior Gap’ which costs investors approximately 4% p.a.
  2. Build investment discipline by process driven systematic investing and risk management
  3. Use low cost, transparent and easy to understand passive investment products like index ETFs.

Index Alpha comprises of 2 equity ETFs and 1 debt ETF. This ensures that your investments are in liquid assets which can be accessed in case of any emergency. After all, what use is money if it is not available when you need it the most.

How does this help you?

Every game has an umpire, who keeps an eye on match conditions like the pitch, light, weather conditions etc. And decides whether the game should continue or not during bad weather. Similarly, when financial markets start showing signs of turbulence and downtrend, the Index Alpha smallcase’s tactical asset allocation system acts like the umpire. It reduces equity allocation and takes cover until good conditions or an uptrend resume.

Time PeriodNIFTY60/40Index Alpha
Feb 15 - Feb 16-22.80%-18.20%-8.40%
Oct 10 - Dec 11
Jan 08 - Oct 08-62.60%-50.70%-22.00%

This can also be seen in the recent performance of this strategy – in the last 6 months, it’s generated 3.90% returns when the Nifty-50 & Nifty Next-50 have actually lost -1.73% and -5.20% respectively.

The Index Alpha smallcase is simple, transparent and low cost. It can be used by investors in all kinds of market scenarios as dynamic risk weights adapt to prevalent market scenarios:

  • Downside risk is managed by rebalancing of weights & ensuring that the initial risk is maintained within certain bounds
  • Algorithms developed by our quantitative research team focus on risk management by periodic rebalancing of these weights

The table below shows how IndexAlpha has protected capital during severe market downturns thereby limiting downside risk.

As witnessed by recent performance, the IndexAlpha tactical asset allocation model will give index like returns with lower (bond like) volatility and lower drawdown than a simple Nifty 50 strategy. 

Index Alpha at ₹1/day – The Nation’s Portfolio

You can buy the Index Alpha smallcase at a cost of ₹1/day. Yes, ₹1/day. India will truly achieve true economic freedom when all Indians have equal access and opportunity to wealth creating opportunities.

We believe that Index Funds are the best “Core” portfolio product for investors who are looking to build a corpus for financial freedom, retirement or any other long-term goal. In fact, we believe in this so strongly that even the team has invested in this smallcase. Index Alpha will be your guide & partner in your investing journey.

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The Index Alpha smallcase
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