Mirae Asset Mutual Fund on February 12, 2023, launched "India’s first Multi factor-based ETF on Nifty Smallcap250 Index," called Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF. As a passive fund, it replicates the Nifty Smallcap 250 Momentum Quality 100 Total Return Index. The Nifty Smallcap 250 Momentum Quality 100 Index is an index that tracks 100 small-cap stocks selected for momentum and quality factors from the Nifty Smallcap 250 Index. The momentum of a stock is assessed by 6 and 12-month price returns adjusted for volatility, while quality considers Return on Equity (ROE), debt to-equity ratio, and EPS growth variability over 5 years.
ETF in the above context is a passively managed fund that is investing in the small cap on the stock exchange, behaving like mutual funds but can also be traded like stocks. So its price fluctuates during trading hours and to invest in ETFs, you need to have a demat account. Being passive, they follow a benchmark index trying to replicate its performance and thus come with fewer fund expenses.
Smallcap stocks may be considered to have potential and when further filtered with parameters like Liquidity, Momentum, and Quality (LQM), they may present a unique asset class seeking wealth creation, the fund house said. Siddharth Srivastava, Head – ETF Product and Fund Manager, said, “By focusing on three tried and tested pillars of Liquidity, Quality, and Momentum (LQM), this is a first-of-its-kind multi-factor product in the smallcap segment, which will seek to track a robust portfolio of select 100 smallcap stocks from Nifty Smallcap 250 Index, with an endeavour for potentially lower drawdowns. ”
The Nifty Smallcap 250 Momentum Quality 100 Index generated 26.8 per cent CAGR over the last decade, outperforming the Nifty Smallcap 250 Index by 5.1 per cent and the Nifty 50 by 11.8 per cent on a CAGR basis. Past returns demonstrate consistent outperformance over the larger Nifty small cap 250 index for the last 20 years except for the last six months. But investors should be mindful of a heads-up from Sebi regarding a correction in small-cap space as they have asked for stress reports from small-cap funds.