The Multifactor Equity PMS from Motilal Oswal aims to build a portfolio that outperforms the overall market over the cTheirse of the investment cycle by taking diversified exposure to several investing factors using a methodical, rules-based methodology.
Portfolio Strategy
The quantitative portfolio construction methodology of Motilal Oswal’s Multifactor Equity PMS tries to allocate to firms that rate well on common investing characteristics, including quality, value, momentum, and low volatility.
The Investment Factors
- Any quality that contributes to an asset’s long-term risk and returns performance is a factor.
- Factors serve as the basic building elements of all investing processes.
- E.g.: Momentum, Quality, Value, Low Vol, etc.
Commonly used Factors
- Momentum: 12 M Returns, 6 M Returns
- Quality: Leverage, Profitability
- Value: Price / Book, Price / Earnings, Dividend Yield
- Volatility: Beta, Standard, Deviation
MFE PMS Stock Selection Framework
- Opportunity Universe: Restrict Universe from 51-300 by Market Capitalization
- Apply Quality Filter: ~75 companies selected based on Quality Filter
- Choose businesses based on their value and momentum: a portfolio of 20–25 companies based on value and momentum
- Quarterly Portfolio Rebalancing
Unique Characteristics of the Portfolio
- Style diversification – use of multiple factors simultaneously
- Elimination of fund manager bias – rule-based portfolio creation
- Adaptive portfolio – Quarterly churn leading to portfolio positioning for changing market conditions (Churn Rate: ~140% p.a.)
- Higher consistency of performance
- Low correlation & exposure to Nifty 50