India’s Passive Growth story continues: S&P Dow Jones study

India’s Passive Growth story continues to climb with significant growth in the past few years. At  Rs.6.04lakh crore AUM size, this accounts for 15 per cent of the Rs.39 lakh crore industry pie according to a study by S&P Dow Jones.The study report states that globally the investment in factors is significant and as of March 31,2022, factor ETFs managed about USD 1.6 trillion assets globally, a 24.6% CAGR compared with the USD178billion10years ago.

In general, factor investing refers to an approach that targets stock characteristics that drive thedifference inexpectedreturns overthe longterm.Blending factors in a portfolio to diversify factor exposure may help deliver smoother excess return across business and market cycles.

 Hence combining the four S&P BSE factors to form a multi-factor strategy could serve as a substitute for a traditional equity allocation.During the past 17 years since 2005), the multi-factor strategy delivered over 2% per year excess return, with about 5% tracking error, and demonstrated a resilient performance across different market environments. 

The rising popularity and appeal of factor-based indices is pushing innovation within the space of multi-factor investing, the study concludes.