Smart beta funds in volatile markets: How 11 schemes with over ₹500 crore AUM stack up

In the last three to four years, almost every Asset Management Company (AMC) has launched multiple smart beta funds. The mention smart beta funds among investors, often evoke a common response: are they really smart? When it comes to judging the smartness of a scheme, investors typically focus only on returns.

In this article, we take a look at how some smart beta funds have performed since their launch. As there are so many smart beta funds, we have considered only 11 schemes with assets under management (AUM) of at least ₹500.

But first, let’s get an overview of what these funds are.

Smart Beta Funds are index funds with a difference. They do not track conventional indices like the Nifty 50 or Nifty 100. Rather, they use factors like value, momentum, quality, low volatility, etc., for creating unique baskets of stocks from the conventional indices. However, every fund house may have different model to define the factors they are considering to make these baskets.

These funds aim to outperform the broader indices by combining the ease of passive investing with factor-based stock picking. Smart beta funds usually track index-like portfolio based on strict set of factor-based rules.

Smart-beta funds performance

Key insights

1)In the current markets, value funds are outperforming all other smart beta strategies across every time horizon considered in the above table. The two value funds listed in the table have delivered nearly 30% returns over both 3 and 5 years. Every other strategy in the table has underperformed value funds.

2)Momentum funds tracking the same index have produced nearly identical returns. Four funds in the table are tracking the Nifty 200 Momentum 30 index. Their 3-month returns range from 7.57 to 7.63, 6-month returns from 0.45 to 0.76, and 1-year returns from -0.70 to -0.17. The differences are negligible.

3)All four Nifty 200 Momentum 30 funds have delivered negative 1-year returns. Every single fund tracking this index is in the red over 1 year, with returns ranging from -0.17% to -0.70%.

4)The Alpha 50 fund has the highest 3-month return in the entire table at 12.96%. It also has returns of 8.01% over 6 months.

6)The Low Volatility fund appears to be delivering on its implicit promise currently. In a period where most momentum funds have delivered negative 1-year returns, the Low Volatility fund returned +0.74% over 1 year and posted strong 3-year (11.76%) and 5-year (12.71%) numbers. Low volatility funds many not top any short-term return chart, but they seem to have avoided the losses that momentum strategies suffered recently due to market volatility in one year.

7)New Quality fund is already in the negative territory. Launched in September 2024, the UTI Nifty200 Quality 30 fund has returned -3.67% over 6 months and -1.67% over 1 year.

8)Value funds have been consistent across both 3-year and 5-year horizons, topped by recent spike. Both value funds show returns of ~29–31% at both the 3-year and 5-year marks.

9)For investors interested in passive investors through factor-based investing or smart beta funds, the factor choice may matter more than fund house choice. As seen in the table, within the same factor (momentum), picking between fund houses makes almost no difference. However, picking between factors, say value versus momentum versus low volatility, produces return gaps of 15–20 percentage points over 3–5 years.