“Equal allocation to the 50 large cap companies can benefit from growth opportunities across the board rather than relying on the performance of few heavyweights. With a period of broad based economic recovery on the anvil, high growth sectors like cement and cement products, pharma, metals and services, are better represented in the Nifty 50 Equal Weight Index. Over time, as markets and economy grow, we expect the Equal Weight (EW) Index to do better than Nifty 50,” said A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC.
He added that, “It has outperformed the Nifty 50 over short and long term periods. Infact some of the stock level polarisation in the base index that we saw in 2018-19 is already reversing sharply. In this backdrop Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund is an intelligent and simple investment option that provides opportunity to capitalise on broad based economic growth in the country.”
The constituents of the Nifty 50 Index are part of the Nifty 50 Equal Weight index. But unlike Nifty 50 which is based on market capitalisation and higher the market cap of a company higher the weightage of the stock in the index, the equal weight index treats all of them equally irrespective of their relative market cap. The index keeps the allocation of the constituent companies at ~2% each. As a result there is broader sectoral representation and more diversification at a stock level. This reduces the concentration risk significantly at an individual stock and overall sector level.
The index is automatically re-constituted every 6 months in line with the Nifty 50, allowing for natural selection of top movers. Additionally, the portfolio is rebalanced on a quarterly basis, leading to smart and periodic profit booking. The fund house said in a press release that since each stock is to have a 2% allocation, if any stock’s allocation increases as a result of market action then on the rebalancing date, the excess percentage of the stock will be sold leading to an automatic profit booking. The proceeds will be re-invested into stocks which have fallen and have less than 2% allocation.