“Bhav Bhagwan Che” – price is God – is a mantra that Dalal Street veterans swear by, while their Western market counterparts have their own adage “trend is your friend”, both suggesting that the wisest way to make money in the market is to spot and ride trends rather than trying to bet against them.
The new Axis Nifty 500 Momentum 50 Index Fund embraces this market wisdom by identifying stocks with the strongest momentum scores to be included in the portfolio.
The index is reviewed and rebalanced twice a year – June and December, and significant changes in portfolio stocks are very common – the last review in December saw over 30 out of 50 stocks change.
Performance data of different factor indices over time does seem to suggest that bhav is indeed Bhagwan – momentum strategies outperform other factors over the long term and significantly outperform market indices.
Momentum performs best in bull markets while it lags other factors like quality and low-volatility in bear markets.
Axis offers an active momentum fund as well as the new passive momentum index fund. The former allows limited fund manager intervention in exceptional circumstances, where events may cause material and lasting re-rating of stocks which the fund manager can avoid by exiting in a timely manner whereas the index will only get reviewed every six months.
One way to determine product suitability between both is to understand what type of person you are. If you board a flight, hear and act on the captain’s announcement asking you to sit back, relax and enjoy the flight, the low cost passive is for you. If however you instinctively look out for the emergency exits upon boarding, the active version might be the right one for you.