Factor Investor Report - March 2023

All things factor investing

After two months, March 23 was a positive month for the market except smallcaps . The quarter ended on a flat and trendless note. There are some interesting moves in the factor and sector ranks. A number of changes in the stock ranks. In the reading section we have a paper by Rajan Raju on Low-Risk Anomaly: Evidence from India. Our book “Mind Money Matters” is a getting a great response from readers. So if you have not got your copy yet, here is where you can order it.

-Editor

1. Factor Performance Summary

After a dull Jan and Feb 2023, markets picked up in March. Value and Momentum both did quite well followed by Low Volatility and Dividend.

For the quarter and on a YTD basis, Dividend remains the only one in the green. Rest all are in the negative, especially High Beta Stocks. This gives us a mixed picture for the quarter which is not in sync with the monthly picture.

2. Five Year Risk & Return - Absolute

3. Relative Returns - Annual

4. Factor Ranks

The biggest gain this month was made by the Momentum factor which jumped from 7th to 3rd rank. Quality fell from 4th to 7th rank.

5. Factor Excess Return Correlations

6. Sector Ranks

Auto loses steam and falls to 6th place while Metal climbs two ranks to 3rd place.

7. Stock Ranks

An important component of our process is ranking stocks on Momentum and Low Volatility over a look back period of 6 months. In the table below we show the top ranked 20 stocks in our Mid and Small Cap universe. The rank is a combined score of Momentum and Low Volatility. It also shows the ranking of the stock one and three months ago.

8. Readings

Low-Risk Anomaly: Evidence from India by Rajan Raju

The low-risk anomaly in the Indian equity market is explored using a broad universe of 4,400 companies over 19 years in India. The anomaly is characterised by a strong convex relationship between returns and volatility. We describe the methodology used to construct five low-risk factors using realised volatility, ex-ante beta, CAPM beta, and realised IVOL as measures of risk. Our findings demonstrate that lower-risk portfolios constructed using these measures exhibit higher risk-adjusted returns than high-risk portfolios. The strength of the anomaly does not appear to diminish over time in Indian equities. There is clear evidence of the low-risk anomaly in the Indian equities market even after controlling for the standard academic factors.

Disclaimer: Nothing in this blog should be construed as investment advice. This is purely for educational purposes only. Please consult an investment advisor before investing.