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Daily Equity - Factor Funds: A Path to Superior Risk-Adjusted Returns with Focus on Momentum and Stability
02
Nov

Factor Funds: Superior Risk-Adjusted Returns With Momentum and Stability

  • 4 min read

Investors are increasingly turning to factor funds for their ability to deliver higher returns and better risk management, offering a smart alternative to traditional mutual funds. To achieve greater returns and better risk control, investors are shifting to factor funds that have emerged as superior alternatives to mutual funds. These funds work on a particular approach where they invest based on values such as value, momentum, quality, and low volatility. This means that instead of grouping funds in specific categories or regions, the market factor approach of a factor fund gives portfolio construction a well-defined and logical structure. The increase in the numbers can be attributed to the fact that they can diversify portfolios and risks, hence providing more stable returns over the medium to long term. The UTI Nifty 500 Value 50 Index Fund gave as high as 66% in one year while the Motilal Oswal BSE Enhanced Value Index Fund gave 65%. The objects of even lower rates of factor funds have been producing the results at between 32 percent to 37 percent levels which are substantially higher than traditional market indices. Market Forces and Stability in Factor Investing  Of all the factors, the most important is momentum. It chooses the stocks that are showing high returns to other similar stocks, thereby capturing up movements in the market. Although, momentum is a two-edged tool in that it is sensitive to market direction. To mitigate this risk, almost all factor funds use both price momentum and other factors, such as quality or low volatility, which usually move in opposite directions. This combination offers a more stabilized return that would significantly dampen during bear phases. One of Mr. Sarkar’s fellow co-founders of the Wealth Redefine – an AMFI (Association of Mutual Funds in India) registered mutual fund distributor, noted that since these funds are based on identified trends in the fund market, these funds can outcompete traditional mutual funds by exploiting these trends and other inefficiencies. “And as it has been seen in the long run, the factor funds that are more tailored to produce better returns.” What Are Factor Funds? Factor-based funds are a form of actively managed funds. They purposely “tilt” portfolios toward certain stock characteristics, like recent momentum, higher quality, or lower stock prices to achieve specific risk and return objectives. But they come with significantly more risk than you’d experience investing in the broader stock market. Factor-based funds select investments based on specific characteristics or “factors” that can affect a stock’s performance Factor Funds: Which One to Choose? The choice of a factor fund should be made in line with the investor’s objectives and risk appetite. If an investor needs stability, low beta or quality-oriented funds are ideal to invest in. These funds tend to invest in businesses with regular profits and little fluctuations for more conservative investors in their 40s or with investment periods of 3-5 years at most. On the other hand, value seekers may opt for momentum or small-cap mutual funds as they are high-growth positive stock funds with high risk. It could take about five to seven years to see the benefits resulting from these strategies.As Nirav Karkera, Head of Research at Fisdom, noted, “Momentum can be a carrier of high returns, but the downside is it is prone to large losses during bearish markets.” Smart Money for Life: The Role of Factor Funds There are multiple pitfalls to factor investing, yet the long-term wealth generation opportunity is vast. Both value and momentum strategies exhibit cyclicality, which may result in poor performance at some stages, though their continuous contribution significantly boosts portfolio returns. “Concerning the factor premiums and the compounded returns, the performance can be boosted over longer durations,” says Anil Rego of Right Horizons. According to analysts, it is important to diversify across factors with excellent results in the long run. Periodic updates and holdings rebalancing are required to make sure that the fund corresponds to the investor’s strategy. According to the founder of Wright Research, Sonam Srivastava, “They are not immune to the ups and downs of the market, but some of them, like low volatility, do act as a buffer to losses during the turmoil.” What should investors look for in factor-based funds? Investors should look for funds that are data-driven, evidence-based, and offer controlled risk management. However, market volatility can impact factor-based funds differently depending on the factors they target – which indeed should be studied to ensure a positive outlook. Investments are subject to market risks. This document should not be treated as endorsement of the views/opinions or as investment advice. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital.

Daily Equity - Global Commodity Prices Set for a Freefall: Oversupply The Culprit - Oil Prices
02
Nov

Global Oil Prices Set For Freefall, Oversupply The Culprit

  • 4 min read

As geopolitical tensions rise, a historic surplus in oil supply could bring relief from inflation but complicate recovery efforts for millions facing food insecurity. In a groundbreaking report released by the World Bank, global commodity prices are projected to drop to a five-year low in 2025, driven by an overwhelming oil surplus that may even dampen the price impacts of escalating conflicts in the Middle East. This dramatic shift signals significant changes in the global economic landscape, offering both challenges and opportunities. As we look ahead, the oil supply is expected to exceed demand by a staggering 1.2 million barrels per day next year—a scenario that has only occurred during the pandemic shutdowns in 2020 and the 1998 oil-price crisis. This glut largely stems from a slowdown in China’s industrial production, where oil demand has stagnated since 2023, compounded by a surge in electric vehicle sales and liquefied natural gas (LNG) trucks. Moreover, non-OPEC+ countries are ramping up production, while OPEC+ itself holds substantial spare capacity of 7 million barrels per day—almost double what it was prior to the pandemic. From 2024 to 2026, commodity prices are expected to fall nearly 10%. Food prices, for instance, are predicted to drop 9% this year and another 4% in 2025, although they will still hover around 25% above pre-pandemic averages. Energy prices are also set to decline by 6% in 2025 and an additional 2% in 2026. This downward trend in food and energy costs could provide much-needed relief for central banks aiming to rein in inflation. However, potential conflicts could throw a wrench in these plans, threatening energy supplies and driving prices back up. Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, emphasizes that while lower commodity prices may cushion the blow from geopolitical shocks, they do little to alleviate the struggle against high food prices in developing countries, where food inflation is twice that of advanced economies. Currently, over 725 million people are facing food insecurity. Recent conflicts in the Middle East have injected volatility into oil prices, particularly as fears mount over possible damage to oil infrastructure. If tensions remain stable, the annual average price of Brent crude is expected to fall to a four-year low of $73 in 2025, down from $80 this year. However, should the conflict escalate and reduce global oil supply by 2%—akin to disruptions seen during the Libyan civil war in 2011—Brent prices could spike to $92 per barrel before settling at an average of $84 in 2025, still above baseline projections. Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank, points out that the global economy is better positioned to handle potential oil shocks now than in the past. This situation presents a rare opportunity for policymakers in developing nations. Lower commodity prices can complement monetary policies aimed at controlling inflation and allow governments to reduce costly fossil-fuel subsidies. Meanwhile, gold prices are on an impressive upward trajectory, expected to rise 21% over the average in 2023, as investors flock to this safe haven asset amid geopolitical uncertainties. Over the next two years, gold prices are predicted to remain around 80% higher than pre-pandemic averages, with only slight declines expected. In the realm of industrial metals, stability is anticipated for 2025-2026, thanks to a balance between weak demand from China’s property sector and tight supply conditions, coupled with increasing needs related to the energy transition. However, any unexpected growth in China could introduce volatility in metal markets. The report also highlights a fascinating analysis of why commodity prices moved in sync during and after the pandemic. It reveals that the global economic shockwaves and significant commodity-specific disruptions—like Russia’s invasion of Ukraine—were key drivers. As price movements have recently become less synchronized, this could signal a new phase in the global commodities landscape. As we navigate through these changes, the economic implications are profound. The upcoming years may redefine how nations respond to commodity price shifts, and the potential for recovery or further challenges hangs in the balance.

Daily Equity - UK Bonds Plunge As Budget Unnerves Investors - Moodys
01
Nov

UK Bonds Plunge As Budget Unnerves Investors

  • 4 min read

Moody’s warns of risks from borrowing plan in Friday report. UK bonds to stabilize after weak US jobs report; Labour’s spending plans stir market concerns. A significant selloff in UK bonds, which pushed borrowing costs to a one-year high, eased on Friday as a disappointing US jobs report increased demand for global debt.Initially, UK gilts fell for a third consecutive day due to concerns over the Labour Party’s plans for increased borrowing and spending. However, the bond market stabilized following signs of weakness in American payrolls, which bolstered the argument for interest rate cuts to support global economic growth. As a result, the yield on benchmark 10-year gilts reached 4.45%, marking a 21 basis point increase over the past week—the largest weekly rise since January. Both Moody’s and S&P Global have expressed a pessimistic outlook on the UK’s fiscal situation. This reaction is likely not what Chancellor Rachel Reeves anticipated for her first budget. Although she had previewed much of Labour’s spending plans beforehand, the announcement itself did not significantly alter market expectations. However, projections from the Office for Budget Responsibility indicated higher inflation and fewer anticipated interest rate cuts due to Labour’s fiscal plans, leading to a swift selloff in bonds, stocks, and the pound. Read More: UK Budget 2024: All You Need To Know With Daily Equity In an effort to reassure financial markets, Reeves emphasized “economic and fiscal stability” in an interview with Bloomberg TV among various others. Yet, comparisons to the gilt market turmoil following Liz Truss’s September 2022 mini-budget were unavoidable, especially given Labour’s positioning as a remedy to previous financial instability. Stefan Koopman, senior macro strategist at Rabobank, noted that the UK bond market appears to be suffering from “post-Truss stress disorder.” He observed that in the face of uncertainty, investors are prioritizing risk management. While the current market moves are less severe than previous episodes, they highlight the fragility of the gilt market and the limited margin for error that Labour faces in revitalizing the sluggish economy. Moody’s Friday report warned that the proposed increase in borrowing—partly enabled by a new debt measurement—would create “additional challenges” for the already difficult task of fiscal consolidation in the UK. This sentiment was echoed by the OBR, which labeled Labour’s plan as “one of the largest fiscal loosenings in recent decades.” Reeves’ budget includes a £70 billion ($90 billion) annual increase in public spending and an additional £100 billion for capital projects, leading to an estimated £142 billion in extra borrowing over the next five years. Chris Iggo, chair of AXA IM Investment Institute, commented that fiscal policy now poses a greater risk to markets than monetary policy, as demonstrated this week. He noted that gilts appear to offer reasonable medium-term value at current yield levels, especially since the Bank of England is expected to continue reducing interest rates, albeit at a slower pace than previously anticipated. Bank Of England Outlook Traders were left in doubt over whether the Bank of England will cut interest rates three or four times by December 2025, with policymakers set to meet next week and give their latest evaluation on inflation. While a quarter-point cut is viewed as likely on Thursday, investors will be listening for any reaction to Reeves’ budget — and the market’s response — from BOE Governor Andrew Bailey. The extra volatility from the UK comes at a sensitive time for markets as hotly contested US elections threaten price swings in Treasuries — and bond markets globally. In Friday’s session, 10-year gilt yields climbed as much as six basis points to 4.51% before erasing that move to trade little changed at 4.45%. Two-year yields — up about 27 basis points on the week — were close to flat after surging the day before. The path of yields from here will play a crucial role in whether Reeves can deliver the budget’s growth goals while also meeting the fiscal deficit rules, given the risk that higher borrowing costs erode her modest buffer. “If yields keep rising the government will be under pressure to say how it would seek to restore some headroom,” said Sam Hill, head of market insights at Lloyds Bank.

Daily Equity - What is Graveyard Doji - formed on Nifty's Charts on Muhurat Trading
01
Nov

What is Graveyard Doji – formed on Nifty’s Chart on Muhurat Trading

  • 3 min read

Graveyard Doji is a candlestick pattern which is indicating further downfall in India’s Benchmark Index, Nifty 50. The recent appearance of a Graveyard Doji pattern in the Nifty 50 index raises questions about the potential for further downside in the Indian market. This follows a double-top formation that previously led to a notable decline. With Nifty currently hovering around the critical 24,500 mark, the focus shifts to whether these levels will hold amidst cautious investor sentiment. Read more: Will Nifty Hold Gains Above 24,500? Understanding “The Graveyard Doji“ The Graveyard Doji is a single-candlestick pattern often seen in technical analysis. It represents indecision in the market, occurring when an instrument opens, rises sharply, and then closes near its opening price, leaving a long upper shadow and a small or nonexistent body. This pattern suggests a potential reversal or bearish trend, as buyers initially dominated but sellers ultimately drove the price back down. Recent Movements in the Indian Stock Market Recently we saw a Double Top Pattern being formed in the Indian Stock Market indices. Which led to a fall of over 2% in a week in major indices like Nifty 50 and Sensex, each. A couple of days later we observed that Nifty 50 formed the same pattern again, resisting the level of 24,500. Read More: The Double Top Pattern: A Continuing Impact on India’s Stock Market Why Did The Market Rise on Muhurat Trading? Positive SentimentsMuhurat Trading is a symbolic, auspicious trading session conducted by stock exchanges in India during Diwali, marking the start of a new financial year according to the Hindu calendar. It’s a long-standing tradition that traders believe brings prosperity and luck for the year ahead. Typically, this session sees high enthusiasm, with traders, especially retail investors, placing trades as a ritualistic gesture. Many see it as a good opportunity to make small, symbolic investments and initiate new portfolios with the hope of profitable returns, thus, converting the sentiments from negative to positive. Oversold StocksMajority of high quality stocks that have been performing good fundamentally, are now available at a very cheap rate. Oversold stocks are those that have declined sharply in price, often due to excessive selling. This condition can make them undervalued and potentially poised for a rebound. This is also a reason for sharp buying in cash and future stocks as well as indices. Global Market SentimentsAsian Markets closed positively with Japan’s Nikkei 225 index closing with weekly gains of 0.78% at JPY 38,052 and Hong Kong’s Hang Seng index closing with weekly gains of 0.93% to close at HK$ 20,506.43.European Markets held along with holding gains throughout the day with UK’s FTSE 100 trading with gains of 1.08% at £8,198.02, France’s CAC 40 trading with gains of 0.43% at €7,411.59 and Germany’s DAX with gains of 0.74% at €19,217.91. Way Ahead While Graveyard Doji suggests a bearish trend, however it’s wise to focus on safe investment strategies and exercise caution. Avoid new high-risk trades in this market environment, and use stop-losses to minimize potential losses. Booking profits on existing profitable trades is a smart approach to maintain a positive outlook, safeguarding gains as the market evolves.

Daily Equity - Canada’s Labour Market Struggles in Q3 2024
31
Oct

Canada’s Labour Market Struggles in Q3 2024

  • 3 min read

Canada’s labor market struggles as job growth lags behind population growth, with employment rising just 34,000 monthly and the unemployment rate slightly up to 6.5% amid uneven wage growth.

Daily Equity - Corporate Earnings Spark Market Volatility Amid Uncertainty
28
Oct

Corporate Earnings Spark Market Volatility Amid Uncertainty

  • 3 min read

Recent U.S. corporate earnings have increased stock market volatility. While the S&P 500 remains steady, individual stocks like Tesla and Netflix surged, while Lockheed Martin saw sharp drops. Investors are shifting towards selective stock-picking strategies, using market dips as opportunities amidst election uncertainty and elevated valuations.

Daily Equity - How Will US Markets Perform This Week
28
Oct

How Will The US Markets Perform This Week?

  • 3 min read

The U.S. markets are poised for volatility this week, driven by earnings reports from tech giants like Apple, Microsoft, and Alphabet. Key economic data, including GDP growth and the PCE inflation index, will also influence sentiment. Additionally, labor market updates and geopolitical uncertainty further shape investor strategies during this pivotal period.

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