Waves Indices

We maintain two indices to illustrate two of our investing strategies:

1. Waves LV30 Dynamic

Low volatility equity strategies, sometimes referred to as risk control strategies, aim to deliver equity market returns with significant less risk than the capitalisation weighted market index. While they have superior long-term return potential, they vary on the risk dimension. Low volatility strategies provide smoother pattern of returns over time compared to capitalisation weighted benchmark portfolios. For ease of understanding we use more popular term index portfolio from here on.

Waves LV30 Dynamic Index measures the performance of 30 least­‐volatile stocks from the past and present constituents of Nifty 200. The index benchmarks low volatility strategy. 

Objective:

Empirically, it has been widely researched and found out that low­‐risk stocks are outperforming their high-risk counterparts and the market over the full market cycle. This index tries to take advantage of this low risk anomaly. The objective of the index is to achieve comparable returns to the benchmark with much lower volatility resulting into superior risk adjusted return. 

Construction Methodology:
Universe: Current and past constituents of Nifty 200 index.
Base date: December 31, 2003
Base Value: 100
Weighting: Equally weighted
Rebalancing: Monthly
Calculation Currency: INR (Indian Rupee) 

Timing of Changes:

• Additions: Index additions are generally made only during their rebalancing on monthly basis. However, in certain instances, a constituent company engaged in a spin-off transaction may necessitate the addition of the spun-off company to the index.

Deletions: If a constituent company stops trading during the month then the company ranked immediately after  the constituents while rebalancing review will replace this company. Deletions may occur only during the rebalancing review. 

Constituent Selection: 

Monthly volatility of all present and past constituents of Nifty 200 index are calculated and then the universe of all constituents of Nifty 200 are ranked in an ascending order of volatility. The monthly volatility is calculated using standard deviation of monthly trailing 36 months’ returns using NSE prices. Top 30 stocks with the lowest volatility are selected as constituents for the index Waves LV30 Dynamic.

Constituent Weightings:
All the constituents are assigned equal weight in Waves LV30 Dynamic Index. Since index weights are assigned at the time of re-balancing, the actual weight of each stock at the re-balancing time differs from these weights due to market movements. 

Other Adjustments:

In cases where there is no achievable market price for a stock being deleted, it will be replaced by the next ranked company, in recognition of the constraints faced by investors in trading bankrupt or suspended stocks.

Historical Performance:

Scorecard LV30 Aug18

 Value of Rs.100 invested in December 2003:
CWI LV30 Aug18

 

To download historical annual returns of Waves LV30  Dynamic: Click here.

2. Waves GB 50:50 Dynamic Index

Waves GB 50:50 Dynamic Index is designed to track the performance of annually re-balanced equity weighted portfolio constructed from invest-able versions of gold and equity benchmark portfolio. It uses Gold BeES and NIFTY Total Return index as a proxy for gold and equity benchmark portfolio respectively.

Objective:

To take the advantage of golden potential of gold as an ideal candidate to reduce the systematic risk of an equity benchmark portfolio and deliver superior risk adjusted performance compared its constituents. Empirical research has proved that gold returns are uncorrelated to many asset classes including equity benchmark portfolio. Even better, gold tends to exhibit minor negative correlation with equity benchmark portfolio during the time of turmoil in equity markets. While we use dynamic constrained Portfolio optimizer to determine percentage allocation to gold and equity benchmark portfolio, this index tracks the performance of a naïve equally weighted portfolio consisting of gold and equity benchmark portfolio.

 Construction Methodology:

Base date: March 31, 2007
Base Value: 100
Calculation Frequency Weekly: Every Saturday based on Friday adjusted closing price on NSE
Weighting: Equally weighted
Launch date: September 30, 2014
Rebalancing: Annual
Calculation Currency: INR (Indian Rupee)

Historical Performance:

GB50 Performance July2016