Home / Money / Personal Finance /  ‘Enhanced Value’ index may not add value for retail investors

The new fund offer (NFO) season is in full bloom. Late last week, Motilal Oswal Mutual Fund launched its S&P BSE Enhanced Value ETF and S&P BSE Enhanced Value Index Fund. The NFO is open for subscription until 12 August.

With value stocks back in favour now, the NFO may be well-timed but long-term returns data for the S&P BSE Enhanced Value TRI (total return index) shows otherwise.

“Value tends to do well in market recoveries as was seen last year and also in 2008, 2012 and 2013. So, anyone betting on market recovery in the next 12-15 months can look at value," says Pratik Oswal, head of passive funds, Motilal Oswal Asset Management Company.

Data, however, shows that the S&P BSE Enhanced Value TRI has lagged both the S&P BSE LargeMidCap TRI and the Nifty 50 TRI on 5-year and 10-year returns over the last 15 years.

The S&P BSE Enhanced Value TRI has also shown greater volatility. This may have something to do with the index’s construction.

 

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The S&P BSE Enhanced Value Index comprises the top 30 companies from the S&P BSE LargeMidCap Index based on their value score. The score is based on an equal-weighted average of price-to-book, price-to-value and price-to-sales scores. As a result, the index comprises the cheapest stocks going by these metrics and these may not necessarily have the best growth potential.

“This product may not make sense for retail investors. It is meant for those who want asset allocation, or who want to add a value factor to their portfolio," says Oswal. According to him, if you want to have a portfolio with lower correlation with the Nifty, then you can add the value factor by investing in this fund.

ABOUT THE AUTHOR

Maulik Madhu

Maulik Madhu is a special correspondent at Mint. She started her career at the Competition Commission of India (CCI) and forayed into business journalism in 2012. Choosing to specialize in personal finance, she worked at FundsIndia and The Hindu Business Line, before joining Mint in March 2022.
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