India’s First Nifty Alpha 50 ETF from Kotak AMC. Should you invest?

Staff Writer   /   December 14, 2021

Kotak Mahindra Asset Management Company Limited (Kotak Mahindra Mutual Fund) has launched India’s first ever Nifty Alpha 50 ETF, Kotak Nifty Alpha 50 ETF. This is an open-ended scheme that will track Nifty Alpha 50 index and gives investors an opportunity to invest in a well-diversified portfolio of stocks with high alpha. It can also be used as a tool to balance investors’ active portfolios, says the fund-house. Let us have a closer look.

What is it

Kotak’s Nifty Alpha 50 ETF will track the performance of 50 stocks listed with NSE with high alpha in the last one year. As per the criteria, these companies are selected from top 300 companies by average free-float market capitalization and average daily turnover for the last six months.

If you are asking what is alpha, then do understand that alpha refers to excess returns earned on an investment above the benchmark return. For instance, if Nifty 50 is up 50%, then a stock with positive alpha has given greater than 50%.

Why invest

Kotak Nifty Alpha 50 ETF has been brought in an easy to understand concept. Being an ETF (which will require a demat account), the fund will be lower cost as compared to actively managed funds. Nifty Alpha 50 index has historically delivered significant alpha over Nifty 50 and Nifty 100. Also, the ETF will have no biases as it tracks a simple index. Hence, Kotak Nifty Alpha 50 ETF will be suitable for investors seeking long-term capital growth.

Fund-house speak

Nilesh Shah, Group President and Managing Director, Kotak Mahindra Asset Management Co. Ltd. said, “Our decision to launch Kotak Nifty Alpha 50 ETF comes at a time when the market has cooled down and valuations have eased. The diversified stocks in the ETF will be based on Kotak’s well-defined strategy that will benefit investors over the long term”.

Existing ‘alpha’ products

Alpha is not a new concept. But Kotak Nifty Alpha 50 ETF is a new offering. Currently, there are some similar products such as Axis Global Equity Alpha FoF and ICICI Prudential Alpha Low Vol 30 ETF. But do note that the mandate of Kotak Nifty Alpha 50 ETF and existing schemes differs. For instance, Axis Global Equity Alpha FoF  is an open ended international fund of fund scheme investing in Schroders International Selection Fund Global Equity Alpha. ICICI Prudential Alpha Low Vol 30 ETF and its FOF variant is an essentially play on the Nifty Alpha Low-Volatility 30 Index.

Nifty Alpha 50 Index aims to measure the performance of securities listed on NSE with high alphas. It is a well-diversified 50 stock index. In order to make the 50 stock index investible and replicable, criteria’s such as liquidity and market capitalization are applied while selection of securities. Weights of securities in the index are assigned based on the alpha values i.e. security with highest alpha in the index gets highest weight. The index has generated 69% return in 1 year, 29.2% CAGR in 5 years and 21.4% CAGR since inception in Nov-2012.

At the moment, the top 10 holdings of Nifty Alpha 50 Index are Adani Total Gas Ltd. 5.40%, Adani Transmission Ltd. 4.41%, KPIT Technologies Ltd. 4.26%, Adani Enterprises Ltd. 3.63%, Tata Elxsi Ltd. 3.42%, Persistent Systems Ltd. 3.09%, HFCL Ltd. 3.04%, Max Healthcare Institute Ltd. 3.02%, Apollo Hospitals Enterprise Ltd. 2.96% and JSW Energy Ltd. 2.92%.

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