Best Value For Your Money from RamaKrishnaVadlamudi: Junior BeES

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Wednesday, 15 February 2023

Adani Stocks Meltdown and Nifty Next 50 Index - vrk100 - 15Feb2023

Adani Stocks Meltdown and Nifty Next 50 Index

(This is just for informational purpose, readers should do their own due diligence, consult their own financial adviser and this should not be construed as investment advice)

Since the release of Hindenburg Research report on Adani group on 24Jan2023, Nifty Next 50 index has suffered a greater loss than the Nifty 50 index. Nifty Next 50 has large- and mid-cap stocks, whereas Nifty 50 consists of mega- and large-cap stocks.

Between 24Jan2023 and now, Nifty 50 index lost 0.60 percent of its value, whereas Nifty Next 50 fell by 8.2 percent. There are five Adani group stocks in the Nifty Next 50 index with a total weight of more than 10 percent (details below) as at the end of Jan2023.

But the share of two Adani group stocks (namely, Adani Enterprises and Adani Ports & SEZ) in Nifty 50 index is only 1.64 percent. As Nifty Next 50 index has greater exposure to Adani group stocks, its loss is bigger than that of Nifty 50 in the past three weeks since the start of Adani stocks meltdown.

In addition, the five Adani stocks that are part of Nifty Next 50 declined more than the two Adani stocks in Nifty 50 index.

(in the past two weeks, I've written three related blogs, please check below)

(story continues below)

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Related Blogs:

Are Indian Stocks Immune to Adani Stocks Meltdown

Meltdown in Adani group Listed Stocks

Why the Divergence Between Sensex and Nifty 50 in Today's Trade?

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Nifty Next 50 Underperformance

Interestingly, both the Nifty Midcap 100 and Nifty Small cap 100 indices have shown resilience despite the recent negativity surrounding the Adani group, which has become one of India's biggest conglomerates in recent years. These two indices have declined by 1.6 percent each in the past three weeks.

There was a time when I used to argue that passive mutual funds (index and exchange traded funds) based on Nifty Next 50 (formerly known as Junior Nifty index) were better than those of Nifty 50. My argument was based on superior diversification and lower concentration risks in Nifty Next 50 index.

My thesis is incorrect, because I did not consider the risk of the concentration of a particular group stocks to the overall index. Now, the rout in Adani group stocks in the past three weeks proved to be a big risk for Nifty Next 50 index.

The two images below will give a better view on how the fortunes of these two indices changed in the past three weeks >

As at the end of 24Jan2023 and 15Feb2023 >

As on 24Jan2023, Nifty 50 index's one-year total return (including dividends) was 7 percent and that of Nifty Next 50 was 4 percent. As at the end of 15Feb2023, Nifty 50's one-year total return is 5.1 percent versus Nifty Next 50's minus 5.7 percent. It seems three weeks is a long time in markets.

In financial markets, our views are humbled several times. As such, we need to change and challenge our assumptions.

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Are Indian Stocks Immune to Adani stock Meltdown?

Meltdown in Adani group Listed Stocks

JP Morgan Guide to Markets

Why the Divergence Between Sensex and Nifty 50 in Today's Trade?

Global Market Data: 2012 to 2022

Indian Stock Market Moves Fully to T+1 Settlement

NSE Indices Comparison 31Dec2022

BSE 500 vs S&P 500 Indices Compare 31Dec2022

Nifty 50 Index Yearly Movement 31Dec2022

India Up the Ladder in MSCI EM Index

New Rules on Ex-date and Record date

Mutual Fund Asset Class Returns 31Dec2022

Crisil Report - Big Shift in Financialisation

Weblinks and Investing

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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

CFA Charter credentials - CFA Member Profile

CFA Badge

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100

Sunday, 30 January 2022

ETF Compare - Nifty BeES and Junior BeES - vrk100 - 30Jan2022

ETF Compare - Nifty BeES and Junior BeES

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(Please check related blog dated 15Feb2023 on Nifty Next 50)

Nippon India ETF Nifty BeES and Nippon India ETF Junior BeES are one of the oldest exchange-traded funds in India. They started trading on stock exchanges in 2001 and 2003 respectively.

The underlying indices of Nifty BeES and Junior BeES are Nifty 50 index and Nifty Next 50 index respectively. As they have the longest track record in India, let us explore how they have performed over the years.

Annual Returns

Table 1 and 2 delineate how the two ETFs have performed on an annual basis from 2004 to 2021. They also portray the asset size and expense ratios of the ETFs as at the end of the respective calendar years.

You can see that Nifty BeES' assets under management (AUM) grew from merely Rs 23 crore at the end of 2004 to Rs 5,677 crore by end-2021. With Junior BeES, AUM increased from a meagre Rs 9 crore to Rs 2,294 crore in the same period.

Of late, ETFs have been gaining traction with Indian stocks attracting a wider range of investor community.

Expense ratios of these ETFs are competitive with competition growing among the mutual fund industry with several fund houses launching various kinds of ETFs based not only on the broader indices, but also based on several other narrow (dubbed as smart) indices.

As on 31Dec2021, the expense ratios of Nifty BeES and Junior BeES are 0.05 per cent and 0.17 per cent respectively--they are competitive; but could undergo changes depending on the changes in asset size and other market factors.

Readers can see that in some years one ETF does well and in others another ETF performs better.

On the NSE stock exchange, these two ETFs have decent volumes. Volumes on BSE are considerably lower.

(please click on the images to view better)

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BSE 500 vs S&P 500 Indices

Who is Eating my Gold ETF Return?

Foreign Investors Waning Interest in Indian Stocks

Indian Equity ETF Risks and Returns

Modi Rally, Recency Bias and Stock Market Returns

Indian Mutual Funds and The Art of Ripping Off Investors

Do Paint Stocks and Crude Oil Tango?

Weblinks and Investing

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Trailing Returns

Table 3 depicts trailing returns of Nifty BeES ETF and Junior BeES ETF from 1-year to 10-year period. It also provides details of risk measures, namely, Sharpe ratio and tracking error.

Sharpe ratio is a measure that describes the return earned per unit of risk taken to earn the returns. The higher the ratio, the better for the investor. Nifty BeES has got a higher Sharpe ratio.

Tracking error shows how closely the ETF is able to track the performance of the underlying index. A lower tracking error indicates that the ETF is able to match the performance of the underlying index with a smaller deviation.

From an investor's viewpoint, the lower the tracking error, the more desirable the ETF. At 0.11 per cent, Nifty BeES has lower error versus Junior BeES' 0.25 per cent.

If you look at table 3, you could see the difference between the 10-year return of Nifty BeES and its underlying index is just 0.20 percentage points (or 20 basis points). Whereas, the difference is higher at 0.80 percentage points between the Junior BeES and its underlying index. This greater difference results in the latter having a higher tracking error.

The return profile presents a mixed picture. In some years, Nifty BeES does well and in others, Junior BeES does well. For example, on a 10-year trailing basis, Junior BeES has provided superior returns; but Nifty BeES did better on a 5-year trailing basis.

Overall Score

Table 4 provides how the two ETFs stack up on parameters outlined against them.

To sum up, the reader can decide for herself how to choose between these two ETFs based on the analysis provided above. Interested readers may access my other articles presented on this blog to get a better grip on mutual funds and other financial instruments (in the past decade, this blogger has contributed almost 300 articles on financial markets).

Finally, it is better to read the important documents available with the fund house before considering the ETFs for investment.

This is not a recommendation for either of the ETF. This is just an attempt to bring the risks and returns inherent in them so that the reader can decide for herself. Happy investing!

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Additional data: As per blog post dated 24Jan2022 - NSE Indices Comparison>

Nifty Indices trailing returns as on 31Dec2021 >

References:

Nifty 50 Index Evolution Over a Decade

NSE Indices Comparison - compare Nifty 50, Nifty Next 50, Nifty 100 and Nifty 500

Mutual fund asset class returns

India Equity ETF Risks and Returns 31Dec2021

BSE 500 versus S&P 500 Indices 31Dec2021

Nippon India MF factsheet for Jan2022 (data end-31Dec2021)

Value Research compare Junior BeES and Nifty BeES

Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

CFA Charter credentials - CFA Member Profile

CFA Badge

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100