#WhereTheSmartInvestorsAre
1/n All about small-cap.
Small cap – BSE defines small cap as the 250 smallest companies in the BSE 500 index which itself is the 500 largest market cap companies in India.
1/n All about small-cap.
Small cap – BSE defines small cap as the 250 smallest companies in the BSE 500 index which itself is the 500 largest market cap companies in India.
2/n
Historical performance of the Small Cap Index in India.
Historical performance of the Small Cap Index in India.
3/n
Is there a small-cap alpha?
Globally - yes.
First identified by Rolf Banz in 1981
“It is found that smaller firms have had higher risk-adjusted returns, on average, than larger firms.”
sciencedirect.com/science/articl…
Is there a small-cap alpha?
Globally - yes.
First identified by Rolf Banz in 1981
“It is found that smaller firms have had higher risk-adjusted returns, on average, than larger firms.”
sciencedirect.com/science/articl…
4/n
Institutionalized by Fama French in their 3-factor model
The Fama French 3-factor model considers the fact that value and small-cap stocks outperform markets on a regular basis.
Institutionalized by Fama French in their 3-factor model
The Fama French 3-factor model considers the fact that value and small-cap stocks outperform markets on a regular basis.
5/n
What about smallcap alpha in India?
A simple monthly regression of BSE Small Cap Index vs BSE Sensex shows:
Alpha – 0%
Beta – 1.17
What about smallcap alpha in India?
A simple monthly regression of BSE Small Cap Index vs BSE Sensex shows:
Alpha – 0%
Beta – 1.17
6/n
What do 0% Alpha and 1.17 beta mean?
"The excess return in smallcap does not justify the excess risk (volatility) you have to take to achieve it."
You are better of investing in large-cap.
What do 0% Alpha and 1.17 beta mean?
"The excess return in smallcap does not justify the excess risk (volatility) you have to take to achieve it."
You are better of investing in large-cap.
7/n
If there is a smallcap alpha everywhere it should be in India too?
That's now how it works.
1/ Since value was discovered and popularized as an investment methodology, the returns to value investing have drastically reduced.
If there is a smallcap alpha everywhere it should be in India too?
That's now how it works.
1/ Since value was discovered and popularized as an investment methodology, the returns to value investing have drastically reduced.
8/n
If there is a smallcap alpha everywhere it should be in India too?
2/ Factors may work on average, but may not work in every market. For eg. value does not work in Australia, and momentum does not work in Japan.
aqr.com/Insights/Resea…
If there is a smallcap alpha everywhere it should be in India too?
2/ Factors may work on average, but may not work in every market. For eg. value does not work in Australia, and momentum does not work in Japan.
aqr.com/Insights/Resea…
9/n
What about smallcap mutual funds in India?
S&P Index Vs Active (SPIVA) runs long term studies on Mid/Small cap space in India.
Only 25% (55%) of active funds in the Mid/Small cap space outperformed Index in the past 1 year (10 years)!
What about smallcap mutual funds in India?
S&P Index Vs Active (SPIVA) runs long term studies on Mid/Small cap space in India.
Only 25% (55%) of active funds in the Mid/Small cap space outperformed Index in the past 1 year (10 years)!
10/n
We would like to know your opinion on smallcap investing in the current market?
#WhereTheSmartInvestorsAre
We would like to know your opinion on smallcap investing in the current market?
#WhereTheSmartInvestorsAre
11/n
If you found the tweets useful, please retweet and spread the word.
Let us know your thoughts here as well - especially if you have data that shows otherwise.
#WhereTheSmartInvestorsAre
If you found the tweets useful, please retweet and spread the word.
Let us know your thoughts here as well - especially if you have data that shows otherwise.
#WhereTheSmartInvestorsAre
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