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Investments: How to use Smart Beta Strategy to beat the market returns [HINDI] - YouTube
Channel: smallcase
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In today's webinar, we'll tell you
what market returns are,
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and how you can use
Smart Beta Smallcase Strategy
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to beat market returns.
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Before we start, I just want to point out
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that our team is available on live chat
to answer all your queries.
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So let's go ahead.
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So, Friends, today we'll talk about
market-beating returns.
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Before we start talking about
market-beating returns,
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I want to say a bit about the market.
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So the market is an index
which measures the health of an economy.
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So two most substantial market index
to measure India's health
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are NIFTY 50 and BSE SENSEX 30.
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So, Friends,
what are the market-beating returns?
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Let's take an example.
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If NIFTY has given
a 10% return in one year,
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and your portfolio has given
a 12% return in the same one year period,
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you have beaten NIFTY by 2%.
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So here you have earned
market-beating returns.
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I would take another example, Friends.
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If in that same one year period,
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NIFTY had a 5% fall,
and your portfolio had only a 2% fall,
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you would beat the market
in this case too.
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Because here you would beat the market
by net 3%.
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So, Friends, this is the basic concept of
market-beating returns.
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But if your goal is not
to beat the market,
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if your goal is just to track the market,
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there is a simple way to do it.
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You can invest money in ETF of
any market index
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on the exchange.
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ETF is like a stock,
and it is traded in the same way.
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And if you, let's say for an example,
invest in NIFTY's ETF,
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then you are basically tracking
NIFTY 50 market here.
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And if NIFTY gives a 5% return
in the upcoming year,
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your ETF will also give a 5% return.
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In this way, you can
easily track the market.
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But, Friends,
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mostly our goal is to
beat the market. Okay?
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So I'll tell you two methods of
beating the market.
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The first method is
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investing in mid-cap and small-cap stocks
to beat the market
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There is one more thing here that
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indexes, like NIFTY 50,
are made up of blue-chip stocks.
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Blue-chip are market's large-cap stocks.
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They have high trading volume
and are less risky.
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The mid-cap and small-cap stocks
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are riskier in comparison
to blue-chip stocks.
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So we can take two examples here.
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Like, you must have recently heard
that PC Jeweller is a very good company.
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It's stock is traded on BSE and NSE.
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In December 2016,
the stocks of PC Jeweller
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were trading at around 150-200 rupees.
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And within one year, its price
rose to 600 rupees by January 2018.
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It is like a three-times return.
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So if anyone...
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If you had invested in PC Jewellers
on December 2016,
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you would have earned a three-times return
within one year.
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Your 100 rupees would have become
300 rupees.
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But since January 2018 to last 5-6 months,
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PC Jewellers have had a great fall.
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Its current price is 80 rupees.
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So, Friends, this is an example of
investing in mid-cap and small-cap stocks.
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People who invested
from December 2016 to January 2018
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earned a three-times return.
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But then in the next 6 months,
their money reduced back to 80 rupees,
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which means they are in a 50% loss.
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So, I don't mean to say that PC Jewellers
is a good stock or a bad stock.
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For those who invested in it for one year
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and sold it after earning
a three-times return, it's a good stock.
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But for those who invested in January
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and lost their 80% wealth till now,
it's a bad stock.
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But, Friends, this is an example.
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If you invest in mid-cap
and small-cap stocks to beat the market,
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you're taking a big risk.
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You may earn good returns on them,
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but you may also have to incur
huge losses.
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So the second method that
I want to tell you
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has been developed by the research team
here at Smallcase.
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It is called Smart Beta Strategy.
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Smart Beta Strategies invest only in
blue-chip large cap stocks
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in a smart way so that you can earn
a higher return at low risk.
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There is a great quotation, a quote.
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It says, "Risk is the price
that you pay to get returns."
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If a benchmark, like NIFTY,
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let's say NIFTY carries a risk of 1 unit,
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and our Smart Beta Strategy
also carries a risk of 1 unit,
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and if NIFTY has given a 10% return
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and our Smart Beta Strategy has given
a 15% return,
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then it means that
at the same level of risk,
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you have earned 5% more returns
through Smart Beta Strategy.
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So, Friends,
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we have developed these
Smart Beta Strategies here at Smallcase.
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And they can
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make you earn market-beating returns
even after taking low risk.
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So, Friends, before I start about
Smart Beta Strategies,
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I would say a few things about Beta.
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The beta is a measure of the volatility
of a stock.
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Let's say, for example,
there is a stock A,
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and there is a market Benchmark NIFTY.
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The beta of any market is
usually assumed to be 1.
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So if the beta of the stock is 2,
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it means it is twice riskier
than the market.
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There is one more thing to note here.
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By twice riskier I mean
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that if the market moves 1% in a day,
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the stock is likely to move twice
i.e., 2%...
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in the direction of NIFTY.
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Now, if the market goes 1% down,
your stock also can go 2% down,
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This is what is meant by Beta = 2
for that stock.
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That it is twice as risky as the market.
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Smart Beta Strategies tries to
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increase your returns
while keeping your risks at low level.
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So it is a way
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to invest in the blue-chip stocks
in the market
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with a smart weighting strategy
which we call as Smart Beta.
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So in this way, you can earn
higher returns, market-beating returns.
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So, Friends, now we'll talk about
Smart Beta weighting schemes.
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Before doing that, I would give you
an example of what a portfolio is.
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So NIFTY, any index,
all these are portfolios.
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Portfolios are composed of stocks
and their weights.
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So a portfolio has
two most important components.
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One is its stocks, and secondly,
the weight of those stocks.
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So if all your stocks are good stocks,
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and you have money invested in
any of their weighing schemes,
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your portfolio may perform very well,
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and you may not have to worry much
about the weighing schemes.
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But, Friends, when you invest
only in blue-chips stocks, your...
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universe, means the stocks
you can invest in,
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get reduced to 100-150.
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So here you must
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keep a weighing acheme along with the same
number of stocks you're investing in
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which helps you to beat the market.
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Let's take an example of it.
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Like, NIFTY 50 is a market-weighted index.
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So it means the larger the market cap
of stock,
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the more weight it will have.
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So NIIFTY 50, as the name indicates,
has 50 stocks in it.
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And Reliance and TCS are
the two biggest stocks.
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Recently, Reliance has beaten TCS
in terms of the market cap.
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So if we talk about Reliance...
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Let's take an example.
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Let's say you have 100 rupees
to invest in the NIFTY 50 portfolio.
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Reliance has the largest
market capitalization.
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Let's assume that it's weight
in the NIFTY 50 index is 30%.
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So when you allocate 100 rupees
in NIFTY 50,
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your 30 rupees will go in Reliance.
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Because it has the largest market cap.
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It means 30%, 30 rupees,
of your portfolio will go in Reliance.
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So if Reliance falls by 10%
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assuming all the other stocks are
at the same level, it will mean
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that the 30% weight into 10%,
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i.e., 3% will be the decrease
in the value of your portfolio.
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And the value of your portfolio will
decrease to 97 rupees.
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On the other hand, ifyou had made
an equally-weighted investment,
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only 2 rupees would have been
invested in Reliance.
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Because there are 50 stocks,
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and you've to weight them equally
for 100 rupees.
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So the weight of each stock will be 2%.
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So 2 rupees will be the amount
invested in Reliance, TCS,
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and each of the other 48 stocks.
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So if Reliance falls by 10%
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and the weight of Reliance is only 2%,
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your portfolio will decrease by only 0.2%.
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So the the final value of your portfolio,
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assuming all the other stocks are
at the same level,
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will just decrease to 99.8.
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You may be thinking
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there is not much difference between
the earlier loss of 3 rupees
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and current loss of 20 paise.
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But if you think about the portfolios
with the higher amount,
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like, if you had invested 1 crore rupees,
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then in the earlier case,
when the weight of Reliance was 30%,
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you would have lost 3 lakh rupees.
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And in the latter case,
you would have lost just 20,000 rupees.
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So, Friends, this is an excellent example
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to understand how you can weight smart
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and earn high returns,
market-beating returns,
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on your portfolio even at low risk.
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So weighing equally is
a Smart Beta Strategy.
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A lot of Smart Beta Strategies
like this...
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are available. Out of which,
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we have developed four
Smart Beta Strategies at Smallcase.
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And now we will talk about them.
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The universe of all our
Smart Beta smallcases
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has only the top 150 stocks by market cap.
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The reason is that
they are blue-chip stocks.
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They have high liquidity
and inherently low risk.
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So, Friends, first Smart Beta smallcase is
Quality Smart Beta smallcase.
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To develop it, we have used four criteria
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for the top 150 market cap stocks.
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The first criteria is
the return on equity.
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The second criteria is
the debt to equity ratio
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which is also called
the gross gearing ratio.
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The third one is the accrual ratio.
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And the fourth one is
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earning's variability
over the past 5 years.
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So with the four ratios
that I've told you about,
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we finally filter 15 stocks.
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And after filtering these 15 stocks,
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our main work is to apply
a Smart Beta Strategy here.
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So we have used an algorithm
for this Quality Smart Beta smallcase.
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A weighing algorithm which is called
Maximum Sharpe Ratio Portfolio.
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Maximum Sharpe Ratio Portfolio
ensures that using these 15 stocks,
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we'll allocate the weight in such a manner
that you will get
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highest expected return
with lowest amount of risk possible.
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As you can see, in this chart,
we have backtested
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Quality Smart Beta smallcase strategy
for the past 11 years.
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And we did that to track
all the up-downs of the market
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like, the market crashed in 2008,
the recent event of demonetization.
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So you can see how
the Quality Smart Beta smallcase strategy
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has performed or outperformed the market
at each and every point.
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And we were able to do that
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because this is
a smart weighing portfolio.
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So we have made a portfolio
with just the blue-chip stocks
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and smart-weighted it by using
Maximum Sharpe Algorithm
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so that you can beat the market,
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earn highest possible return
with lowest amount of risk possible.
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Friends, next we will talk about
Growth Small Beta smallcase.
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To make this smallcase,
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we will again take
the 150 blue-chip market cap stocks.
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Here, we try to filter out
growth companies
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which are generating commandable profits
over the past 5 years
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along with high earnings growth.
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So, these are essentially called
growth comapnies
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And they have the ability to
reinvest their profits.
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And hence these companies command
high valuations.
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To make this smallcase,
when we search for growth companies,
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we again select those 15 stocks.
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And our Smart Beta Algorithm here is
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Minimum Volatility Portfolio.
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Minimum Volatility Portfolio ensures
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to allocate the weight
among those top 15 stocks of yours
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so that the volatility or the risk of
your overall portfolio is minimized.
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Again, you can see in the chart
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we tested this smallcase
for the past 11 years.
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And you can see how it has handsomely
beat the market
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which is the benchmark here NIFTY 50
over the past 11 years.
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So, Friends, now we will talk about
Low Risk Smart Beta smallcase.
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So this smallcase again takes
the top 150 blue-chip companies,
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and we filter out the top 15
lowest volatility stocks.
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So here we take those top 15 stocks
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which had the lowest volatility or risk
in the past one year.
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After we select these stocks,
we have found
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that even low volatility, low risky stocks
can provide you
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very handsome market-beating returns.
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Smart Beta Strategies invest only in
blue-chip large cap stocks
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in a smart way so that you can earn
higher returns even at low risk.
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The Smart Beta Scheme we used
for this portfolio is
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Maximum Diversification Algorithm.
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Friends, I would explain
diversification to you a bit.
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Let's take an example that
you invest in a stock, Stock A.
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And you invest 10 rupees in it.
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And let's say, in 6 months,
that stock is down by 50%.
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So you will lose your complete 50 rupees.
You are down to 50.
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Now, on the other hand,
if you had invested in two stocks,
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if you'd put the same 100 rupees
but in two stocks
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equally as 50 rupees in each,
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then the stock which is down by 50%
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would have reduced your value
to 25 rupees.
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Whereas if we assume that
the other stock didn't give any return,
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and its value is still 50 rupees,
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then your portfolio would have been
at 75 rupees after 6 months,
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not at the 50 rupees as in the first case.
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So, Friends, by investing in two stocks
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you have added diversification
in your portfolio
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by which you have reduced your losses.
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So in the top 15 stocks
that we have filtered,
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now we will apply Smart Beta Allocation
Weighing Scheme in such a way
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that maximizes the diversification
of your portfolio.
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As you can see in this chart,
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this smallcase has handsomly beaten NIFTY
over the past 11 years.
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Its CAGR has been around 19%.
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And this means that on an average,
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every year you have got a 19% return.
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So, Friends, now we will talk about
Dividend Smart Beta Smallcase.
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Before I start it,
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I want to tell to about
the returns of any stock.
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The returns of any stock has
two important components.
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One is price return,
and the other is the dividend return.
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To give you an example,
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let's say you buy a stock
at a price of rupees 100.
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And after one year,
that stock's price has become 110.
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And within that same one year,
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that stock has given you
a dividend of 2 rupees.
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So here your return has two components.
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One is your price return which is 10%.
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And the other is your dividend return
which is 2%.
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To make this smallcase,
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we have taken the same top 150
blue-chip companies.
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We have filtered out those companies
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who have been increasing their dividends
continuously from the past five years
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while maintaining high dividend yield.
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So when we filter out final 15 stocks
using these criteria...
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We have used Minimum Volatility Algorithm
Smart Weighing Scheme here
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Like I have told you about it
in the earlier smallcase,
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that this Minimum Volatility Algorithm
ensures
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that you allocate your money
in the portfolio in such a way
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that the overall risk of your portfolio
can be minimized.
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So, Friends, as you can
again see in the chart,
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the test that we've done
on the past 11 years
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and how this smallcase
has beaten the benchmark NIFTY
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at each and every point.
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So before concluding,
I would like to say again
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that we have talked about
four Smart Beta smallcases.
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Quality, low risk, dividend and growth.
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If you have any question about
these four strategies,
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you can visit our website.
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You can email us too at
[email protected]
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The objective of all these four strategies
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is to use the top 150 blue-chip stocks
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to obtain market-beating returns.
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And at the same time,
you bear a very low risk in every case.
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You bear a risk which is almost equal to
the market risk.
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And you beat the market.
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So, Friends, thank you everyone for
joining us today on this webinar.
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We are having another webinar for you
next week.
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In which you can see
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how to use the AWI Smallcases
discussed in the last week
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and the Smart Beta Smallcases Strategies
discussed today
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to build a core-satellite portfolio,
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to achieve your returns objective.
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You can see that in the webinar next week.
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Thank you very much.
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Buying a smallcase is supereasy.
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All it takes is a couple of clicks.
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You confirm the amount you like to invest.
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Click invest now and confirm your order.
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We start placing your order.
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After which you can view your investments
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