ArthVeda Capital, an Indian asset management firm, has rolled out a suite of eight rules-based value investing indices. The compilations, released under the firms newly launched Smart Alpha Framework, attempt to identify stocks that are trading at discounts to their perceived intrinsic values, producing a portfolio with low risk and high quality characteristics. The indices may be used as a reference for index-linked investment products such as exchange-traded funds.
ArthVeda Chairman & Managing Director, Kapil Wadhawan.
“The US launch of our global family of Smart Alpha Indices represents an important new initiative for ArthVeda Capital,” said ArthVeda Chairman & Managing Director Kapil Wadhawan. “As a leading innovator in global asset management, we are looking forward to making our proprietary methodology available to investors in US and international equities through partnerships with leading US-based ETF issuers and asset managers.”
The Smart Alpha collection is composed of Smart Alpha, Smart Value and Smart Income indices. Smart Alpha Indices select stocks exhibiting stable business models, robust balance sheet reports and a history of value-creation through capital allocation. Smart Income indices select the 50 highest dividend payers from within their respective benchmark pools of stocks. Smart Value indices track broad ranges of stocks equivalent to broad market equity exposures, but weight the holdings to better capture the value factor.
Each index type employs weighting schemes that differ from the traditional, yet arguably flawed, market-capitalisation weighted system. Smart Income indices assign an equal weighting to each constituent; Smart Alpha and Smart Value indices assign greater weights to an individual holding if that stock is deemed to be trading at a greater discount to its intrinsic value.
Dr. Vikas Gupta, Executive Vice President and Chief Investment Officer at ArthVeda Capital, commented: “The major disadvantage of conventional indices is that, because they are market-cap weighted, they tend to over-allocate to overvalued stocks and under-allocate to undervalued stocks. Smart Alpha does the reverse, which tends to produce better performance over the longer term.”
ArthVeda Director & Chief Executive Officer Bikram Sen. added, “Rather than adjusting for exogenous factors that may affect business in the short term, we focus entirely on identifying undervalued high quality companies using our patent-pending Smart Alpha framework, which differs considerably from low price multiple approaches that are typically associated with value investing.”
ArthVeda Capital has partnered with the NYSE for the independent calculation and dissemination of the new indices. Furthermore, the firm plans to launch options on the new indices before the year-end, while talks are ongoing with US ETF issuers about licensing the indices for ETF product development.
The new indices that have been launched include:
ArthVeda Smart Alpha US Total-cap 50
ArthVeda Smart Value US Large-cap 500
Arthveda Smart Value UK Large-cap 100
ArthVeda Smart Value Europe Ex-UK Large-Cap
ArthVeda Smart Value Japan Large-Cap
ArthVeda Smart Income US Total-cap 50 Divine Dividend
ArthVeda Smart Income International Large-cap 50 Divine Dividend
ArthVeda Smart Income Global Large-cap 50 Divine Dividend